PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK

6-K 1 u92366e6vk.htm PT TELEKOMUNIKASI INDONESIA PT Telekomunikasia Indonesia PAGEBREAK

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13 a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of July, 2004

Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA

(Translation of registrants name into English)

Jalan Japati No. 1 Bandung-40133 INDONESIA

(Address of principal executive office)

[Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F Form 20-F þ Form 40-F o

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 Yes o No þ

[If yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

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SIGNATURES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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link1 "SIGNATURES"

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

Perusahaan Perseroan (Persero)
PT TELEKOMUNIKASI INDONESIA
(Registrant)

Date July 30, 2004
(Signature)
Rochiman Sukarno
Head of Investor Relation Unit

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES link2 "CONSOLIDATED BALANCE SHEETS"

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

AS OF JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

		2003 — (Restated)	2004
	Notes	Rp	Rp	US$ (Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	2c,2f,7	3,954,984	6,983,664	743,734
Temporary investments	2c,2g,8	88,659	52,866	5,630
Trade accounts receivable	2c,2h,9
Related parties - net of allowance for doubtful
accounts of Rp150,050 million in 2003,
and Rp142,263 million in 2004		1,364,652	468,146	49,856
Third parties - net of allowance for doubtful
accounts of Rp331,832 million in 2003,
and Rp485,479 million in 2004		2,102,821	2,691,676	286,653
Other accounts receivable - net of allowance for
doubtful accounts of Rp33,093 million in 2003,
and Rp56,465 million in 2004	2c,2h	277,217	404,225	43,048
Inventories - net of allowance for obsolescence of
Rp49,271 million in 2003, and Rp42,027 million
in 2004	2i,10	156,198	139,644	14,872
Prepaid expenses	2c,2j,11	692,898	779,105	82,972
Prepaid taxes	44a		39,395	4,195
Other current assets	2c,12	103,323	163,302	17,391
Total Current Assets		8,740,752	11,722,023	1,248,351
NON-CURRENT ASSETS
Long-term investments - net	2g,13	172,777	75,318	8,021
Property, plant and equipment - net of accumulated
depreciation of Rp21,777,648 million in 2003,
and Rp25,756,696 million in 2004	2k,2l,14	29,615,586	35,453,720	3,775,689
Property, plant and equipment under revenue-
sharing arrangements - net of accumulated
depreciation of Rp893,144 million in 2003,
and Rp928,954 million in 2004	2m,16,53	336,095	2,851,110	303,633
Advances and other non-current assets	2c	379,293	261,912	27,893
Intangible assets - net of accumulated amortization
of Rp309,640 million in 2003,
and Rp374,396 million in 2004	1c,2d,17	3,588,727	4,769,654	507,950
Advance payments for investments in shares of stock	6e	279,083	65,458	6,971
Escrow accounts	18	286,155	624,298	66,485
Total Non-current Assets		34,657,716	44,101,470	4,696,642
TOTAL ASSETS		43,398,468	55,823,493	5,944,993

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

		2003
		(Restated)	2004
	Notes	Rp	Rp		US$ (Note 3)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable	2c,19
Related parties		432,809		767,978		81,787
Third parties		1,598,986		2,633,851		280,495
Other accounts payable		80,447		82,407		8,776
Taxes payable	2s,44b	1,178,911		1,011,351		107,705
Dividends payable		1,295,263		680,270		72,446
Accrued expenses	2c,20	1,351,913		1,887,597		201,022
Unearned income	21	597,563		746,869		79,539
Advances from customers and suppliers	22	238,414		384,147		40,910
Short-term bank loan	2c,23,49			773,595		82,385
Current maturities of long-term liabilities	2c,24	1,882,612		2,098,157		223,446
Total Current Liabilities		8,656,918		11,066,222		1,178,511
NON-CURRENT LIABILITIES
Deferred tax liabilities - net	2s,44e	3,090,148		3,536,911		376,668
Unearned income on revenue-sharing arrangements	2m,16,53	113,787		2,706,673		288,251
Unearned initial investor payments under joint
operation schemes	2n,37,52	63,446		28,266		3,010
Provision for long service awards	2r,48	481,423		509,432		54,253
Provision for post-retirement health care benefits	2r,49	1,935,869		2,076,509		221,140
Long-term liabilities - net of current maturities
Two-step loans - related party	2c,25	6,950,208		6,750,786		718,933
Guaranteed notes and bonds	26	2,242,750		1,742,959		185,619
Bank loans	2c,27	379,989		2,569,807		273,675
Liabilities for acquisitions of subsidiaries	28	1,623,183		718,290		76,495
Suppliers credit loans	29	140,323
Bridging loan	30	23,684
Other long-term debt		9,150		9,150		974
Total Non-current Liabilities		17,053,960		20,648,783		2,199,018
MINORITY INTEREST	31	2,899,899		3,912,474		416,664
STOCKHOLDERS EQUITY
Capital stock - Rp 500 par value per Series A
Dwiwarna share and Series B share
Authorized - one Series A Dwiwarna share and
39,999,999,999 Series B shares
Issued and fully paid - one Series A Dwiwarna share
and 10,079,999,639 Series B shares	32	5,040,000		5,040,000		536,741
Additional paid-in capital	33	1,073,333		1,073,333		114,306
Difference in value of restructuring transactions
between entities under common control	34	(7,288,271	)	(7,288,271	)	(776,173	)
Difference due to change of equity in associated
companies	2g	424,020		385,595		41,064
Unrealized loss on investment in securities	2e			136		14
Translation adjustment		230,630		232,078		24,715
Retained earnings
Appropriated		1,559,068		1,559,068		166,035
Unappropriated		13,748,911		19,194,075		2,044,098
Total Stockholders Equity		14,787,691		20,196,014		2,150,800
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		43,398,468		55,823,493		5,944,993

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES link2 "CONSOLIDATED STATEMENTS OF INCOME"

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars, except per share and per ADS data)

		2003
		(Restated)	2004
	Notes	Rp	Rp		US$ (Note 3)
OPERATING REVENUES
Telephone	2p,35
Fixed lines		4,116,043		5,003,204		532,822
Cellular		3,824,432		4,957,675		527,974
Interconnection	2p,36	2,031,622		2,750,678		292,937
Joint operation schemes	2n,37,52	859,871		262,175		27,921
Data and Internet	38	1,310,369		2,144,363		228,367
Network	39	216,004		274,836		29,269
Revenue-sharing arrangements	2m,40,53	124,043		492,939		52,496
Other telecommunications services		102,833		222,735		23,720
Total Operating Revenues		12,585,217		16,108,605		1,715,506
OPERATING EXPENSES
Personnel	41	2,131,748		2,675,323		284,912
Depreciation	2k,2l,2m,14,16	2,140,664		2,970,881		316,388
Operations, maintenance and telecommunication
services	42	1,519,085		2,200,010		234,293
General and administrative	43	814,990		1,124,042		119,706
Marketing		217,025		409,587		43,619
Total Operating Expenses		6,823,512		9,379,843		998,918
OPERATING INCOME		5,761,705		6,728,762		716,588
OTHER INCOME (CHARGES)
Interest income		190,219		184,416		19,640
Interest expense		(619,552	)	(695,815	)	(74,102	)
Gain (loss) on foreign exchange - net	2e	383,733		(869,814	)	(92,632	)
Equity in net income (loss) of associated companies	2g,13	4,360		2,824		301
Others - net		272,093		244,179		26,004
Other income (charges) - net		230,853		(1,134,210	)	(120,789	)
INCOME BEFORE TAX		5,992,558		5,594,552		595,799
TAX EXPENSE	2s,44e
Current tax		(1,751,855	)	(1,839,908	)	(195,943	)
Deferred tax		(6,981	)	9,859		1,050
		(1,758,836	)	(1,830,049	)	(194,893	)
INCOME BEFORE MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES		4,233,722		3,764,503		400,906
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES	31	(695,641	)	(889,347	)	(94,712	)
NET INCOME		3,538,081		2,875,156		306,194
BASIC EARNINGS PER SHARE	2t,45
Net income per share		351.00		285.23		0.03
Net income per ADS
(20 Series B shares per ADS)		7,020.00		5,704.68		0.61

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES link2 "CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY"

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)

FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change
			Additional	between entities	of equity
		Capital	paid-in	under common	in associated
Description	Notes	stock	capital	control	companies
		Rp	Rp	Rp	Rp
Balance as of January 1, 2003 - Restated		5,040,000	1,073,333	(7,288,271	)	424,020
Foreign currency translation of CSM	2g,12
Resolved during the Annual General Meeting
of the Stockholders on May 9,
2003
Declaration of cash dividend	46
Appropriation for general reserve	46
Social contribution	46
Net income for the year
Balance as of June 30, 2003 - Restated		5,040,000	1,073,333	(7,288,271	)	424,020

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Unrealized
	loss on		Retained earnings
	investment	Translation
Description	in securities	adjustments	Appropriated	Unappropriated
	Rp	Rp	Rp	Rp
Balance as of January 1, 2003 - Restated		235,665		745,404	14,383,466
Foreign currency translation of CSM		(5,035	)
Resolved during the Annual General Meeting
of the Stockholders on May 9,
2003
Declaration of cash dividend					(3,338,109	)
Appropriation for general reserve				813,664	(813,664	)
Social contribution					(20,863	)
Net income for the year					3,538,081
Balance as of June 30, 2003 - Restated		230,630		1,559,068	13,748,911

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED) (continued) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change	Unrealized
			Additional	between entities	of equity	loss on		Retained earnings
		Capital	paid-in	under common	in associated	investment	Translation
Description	Notes	stock	capital	control	companies	in securities	adjustments	Appropriated	Unappropriated
		Rp	Rp	Rp	Rp	Rp	Rp	Rp	Rp
Balance as of January 1, 2004		5,040,000	1,073,333	(7,288,271	)	385,595		224,232	1,559,068	16,318,919
Placement on fixed income mutual
fund							136
Foreign currency translation of CSM	2g,12							7,846
Net income for the year	46									2,875,156
	46
Balance as of June 30, 2004	46	5,040,000	1,073,333	(7,288,271	)	385,595	136	232,078	1,559,068	19,194,075

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements

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link2 "CONSOLIDATED STATEMENTS OF CASH FLOWS"

PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)


(Restated)		2004
Rp		Rp		US$ (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from operating revenues
Telephone and interconnection - net
Fixed lines	3,481,519		4,757,797		506,688
Cellular	5,273,027		6,072,449		646,693
Joint operation scheme	535,551		797,598		84,941
Interconnection - net	1,635,391		1,952,305		207,913
Other services	439,587		804,454		85,671
Total cash receipts from operating revenues	11,365,075		14,384,603		1,531,906
Cash payments for operating expenses	(5,161,308	)	(6,168,009	)	(656,870	)
Cash generated from operations	6,203,767		8,216,594		875,036
Interest received	195,301		187,470		19,965
Income tax payments	(1,986,706	)	(2,157,157	)	(229,729	)
Interest paid	(507,497	)	(613,602	)	(65,346	)
Advances from customers	(26,026	)	19,021		2,026
Net Cash Provided by Operating Activities	3,878,839		5,652,326		601,952
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments and maturity of
time deposits	1,647,830		345,594		36,804
Proceeds from sale of property, plant and equipment	47,722		3,544		377
Purchase of marketable securities and placements
in time deposits	(601,370	)	(394,454	)	(42,008	)
Acquisition of property, plant and equipment	(3,239,180	)	(2,095,457	)	(223,158	)
Decrease (Increase) in advances and others	285,456		(85,958	)	(9,154	)
Payments of advances for investments in shares of stock	(31,660	)
Cash dividend receipt	(913,240	)
Acquisition of subsidiaries	336,288
Net Cash Used in Investing Activities	(2,468,154	)	(2,226,731	)	(237,139	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term liabilities	(386,712	)	(1,178,344	)	(125,489	)
Purchase of guaranteed notes			(490,803	)	(52,269	)
Cash dividends paid	(2,469,569	)
Security deposits	(38,101	)	(43,194	)	(4,600	)
Received of long-term liabilities	23,370		166,901		17,774
Decrease (Increase) in escrow account	(285,473	)	(104,532	)	(11,132	)
Net Cash Used in Financing Activities	(3,156,485	)	(1,649,972	)	(175,716	)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS	(1,745,800	)	1,775,623		189,097
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENT	1,714		113,569		12,095
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR	5,699,070		5,094,472		542,542
CASH AND CASH EQUIVALENTS AT JUNE 30	3,954,984		6,983,664		743,734

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)


Noncash investing and financing activities in 2004:
Increase in property under construction through
the incurrence of long-term debt	741,584	78,975
Initial recognition of property, plant and equipment
under revenue sharing arrangement	2,773,375	295,354
Write off property, plant and equipment at Telkomsel	395,429	42,112

See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES link2 "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS"

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL

| a. |
| --- |
| Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk (the
Company) was originally part of Post en Telegraafdienst, which was
established in 1884 under the framework of Decree No. 7 dated March 27,
1884 of the Governor General of the Dutch Indies and published in State
Gazette No. 52 dated April 3, 1884. |
| In 1991, based on Government Regulation No. 25 year 1991, the status of
the Company was changed into a state-owned limited liability corporation
(Persero). The Company was established based on notarial deed No. 128
dated September 24, 1991 of Imas Fatimah, S.H. The deed of establishment
was approved by the Minister of Justice of the Republic of Indonesia in
his decision letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991,
and was published in State Gazette of the Republic of Indonesia No. 210
dated January 17, 1992, Supplement No. 5. The articles of association
have been amended several times, the most recent amendment was made
through deed No. 4 dated January 10, 2002, of Notary A. Partomuan Pohan,
S.H., LLM., concerning the change in the Companys objective, scope of
activities, directors scope of authorities and the composition of the
Companys board of commissioners. The notarial deed was approved by the
Minister of Justice and Human Rights of the Republic of Indonesia in his
decision letter No. C-00682HT.01.04.Th.2002 dated January 15, 2002. |
| In accordance with article 3 of its articles of association, the scope of
the Companys activities is as follows: |

| 1. | The Companys objective is to provide telecommunications and
information facilities and services, in accordance with prevailing
regulations. |
| --- | --- |
| 2. | To achieve the above objective, the Company is involved in the
following activities: |

| i. | Planning, building, providing, developing, operating,
marketing or selling, leasing and maintaining telecommunications
and information networks in accordance with prevailing
regulations. |
| --- | --- |
| ii. | Planning, developing, providing, marketing or selling
and improving telecommunications and information services in
accordance with prevailing regulations. |
| iii. | Performing activities and other undertakings in
connection with the utilization and development of the Companys
resources and optimizing the utilization of the Companys
property, plant and equipment, information systems, education and
training, and repairs and maintenance facilities. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

| a. |
| --- |
| The Companys principal business is the provision of domestic
telecommunications services, including telephone, telex, telegram,
satellite, leased lines, electronic mail, mobile communication and
cellular services. In order to accelerate the construction of
telecommunications facilities, to make the Company a world-class
operator, and to increase the technology as well as the knowledge and
skills of its employees, in 1996, the Company entered into agreements
with investors to develop, manage and operate telecommunications
facilities in five of the Companys seven regional divisions under Joint
Operation Schemes (known as Kerja Sama Operasi or KSO). |
| The Companys head office is located at Jalan Japati No. 1, Bandung, West
Java. |
| Under Law No. 3/1989 on Telecommunications which took effect on April 1,
1989, Indonesian legal entities are allowed to provide basic
telecommunications services in cooperation with the Company as the
domestic telecommunications organizing body (or badan penyelenggara).
Other Indonesian legal entities are also allowed to individually provide
non-basic telecommunications services. In providing telecommunications
services, these entities are required to obtain licenses from the
Minister of Communications of the Republic of Indonesia (the Ministry of
Communications assumed responsibility for the telecommunications sector
from the previous Ministry of Tourism, Post and Telecommunications in
March 1998). Government Regulation No. 8/1993 concerning the provision of
telecommunications services, further regulates that cooperation to
provide basic telecommunications services can be in the form of joint
venture, joint operation or contract management and that the entities
cooperating with the domestic telecommunications organizing body must use
the organizing bodys telecommunications networks. If the
telecommunications networks are not available, the Government Regulation
requires that the cooperation be in the form of a joint venture that is
capable of constructing the necessary networks. |
| The Minister of Tourism, Post and Telecommunications of the Republic of
Indonesia (MTPT), through his two decision letters both dated August
14, 1995, reaffirmed the status of the Company as the organizing body for
the provision of domestic telecommunications services. |
| Further, effective from January 1, 1996, the Company was granted the
exclusive right to provide local wireline and fixed wireless services for
a minimum period of 15 years and the exclusive right to provide domestic
long-distance telecommunications services for a minimum period of 10
years. The exclusive rights also apply to telecommunications services
provided for and on behalf of the Company through a KSO. This grant of
rights does not affect the Companys right to provide other domestic
telecommunications services. |
| On September 8, 1999, the Government issued Law No. 36/1999 on
Telecommunications to replace Law No. 3/1989. Under the new Law, which
took effect from September 2000, telecommunications activities cover: |

i.	Telecommunications networks
ii.	Telecommunications services

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

| a. |
| --- |
| iii. Special telecommunications |
| National state-owned companies, regional state-owned companies,
privately-owned companies and cooperatives are allowed to provide
telecommunications networks and services. Special telecommunications can
be provided by individuals, government agencies and legal entities other
than telecommunications networks and service providers. |
| Under Law No. 36/1999, activities that result in monopolistic practices
and unfair competition are prohibited. In connection with this law,
Government Regulation No. 52/2000 was issued, which provides that
interconnection fees shall be charged to originating telecommunications
network operators where telecommunications service is provided by two or
more telecommunications network operators. |
| Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2000 from
the Director General of Post and Telecommunications and the correction
thereto No. 1718/UM/VIII/2000 dated August 2, 2000, the period of
exclusive rights granted to the Company to provide local and domestic
long-distance fixed-line telecommunications services was shortened to
expire in August 2002 and August 2003, respectively. In return, the
Government is required to pay compensation to the Company, the amount of
which is to be estimated by an independent appraiser appointed by the
Government. |
| Based on a press release from the Coordinating Minister of Economics
dated July 31, 2002, the Government decided to terminate the Companys
exclusive rights as a network provider for local and long-distance
services with effect from August 1, 2002. On August 1, 2002, PT
Indonesian Satellite Corporation Tbk (Indosat) was granted a license to
provide local and long-distance telecommunications services. |
| On March 30, 2004, the Minister of Communications issued Announcement No.
PM.2 year 2004 regarding the Implementation of Restructuring in the
Telecommunications Sector which, among others, conveys the compensation
for early termination of exclusive rights. (See Note 56f) |
| On May 13, 2004, pursuant to the Ministry of Communications Decree No.
KP. 162/2004, the Company was granted a commercial license to provide
International Direct Dialing (IDD) services. |
| Based on the resolution of the Extraordinary General Meeting of
Stockholders, the minutes of which have been notarized by deed No. 37
dated June 21, 2002 of A. Partomuan Pohan, S.H., LLM., the composition of
the Companys Board of Commissioners and Board of Directors as of June
30, 2003 was as follows: |

President Commissioner	:	Bacelius Ruru
Commissioner	:	Agus Haryanto
Commissioner	:	Djamhari Sirat
Independent Commissioner	:	Arif Arryman
Independent Commissioner	:	Petrus Sartono

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

a. Establishment and General Information (continued)

President Director	:	Kristiono
Director of Finance	:	Guntur Siregar
Director of Telecommunications Service Business	:	Garuda Sugardo
Director of Human Resources and Support Business	:	Agus Utoyo
Director of Telecommunications Network Business	:	Suryatin Setiawan

Based on the resolution of the Extraordinary General Meeting of Stockholders, the minutes of which have been notarized by deed No. 4 dated March 10, 2004 of A. Partomuan Pohan, S.H., LLM., the composition of the Companys Board of Commissioners and Board of Directors as of June 30, 2004 was as follows:

President Commissioner	:	Tanri Abeng
Commissioner	:	Anggito Abimanyu
Commissioner	:	Gatot Trihargo
Independent Commissioner	:	Arif Arryman
Independent Commissioner	:	Petrus Sartono
President Director	:	Kristiono
Director of Finance	:	Rinaldi Firmansyah
Director of Telecommunications Service Business	:	Suryatin Setiawan
Director of Human Resources and Support Business	:	Woeryanto Soeradji
Director of Telecommunications Network Business	:	Abdul Haris

| | As of June 30, 2003 and 2004, the Company had 32,426 employees and 30,305
employees, respectively, including those in the KSO Units, while the
subsidiaries had 3,722 employees and 4,384 employees, respectively. |
| --- | --- |
| b. | Public offering of shares of the Company |
| | The Companys total number of shares immediately prior to its initial
public offering was 8,400,000,000, which consisted of 8,399,999,999
series B shares and 1 series A Dwiwarna share, all of which were owned by
the Government of the Republic of Indonesia (the Government). On
November 14, 1995, the Government sold the Companys shares through an
initial public offering on the Jakarta Stock Exchange and Surabaya Stock
Exchange. The shares offered consisted of 933,333,000 new series B shares
and 233,334,000 series B shares owned by the Government. A share offering
was also conducted on the New York Stock Exchange and London Stock
Exchange for 700,000,000 series B shares owned by the Government of the
Republic of Indonesia, which were converted into 35,000,000 American
Depositary Shares (ADS). Each ADS represents 20 series B shares. |
| | In December 1996, the Government completed a block sale of 388,000,000
series B shares, and later in 1997, distributed 2,670,300 series B shares
as an incentive to stockholders who did not sell their shares within one
year from the date of the initial public offering. In May 1999, the
Government sold 898,000,000 series B shares. |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

b.	Public offering of shares of the Company (continued)
	Under Law No.1/1995 on Limited Liability Companies, the minimum total par
value of the Companys issued shares of capital stock must be at least
25% of the total par value of the Companys authorized capital stock, or
in the Companys case Rp5,000,000 million. To comply with the Law, it was
resolved at the Annual General Meeting of Stockholders on April 16, 1999
to increase the issued share capital by way of capitalization of certain
additional paid-in capital. The bonus shares were distributed to the then
existing stockholders in August 1999.
	In December 2001, the Government conducted another block sale of
1,200,000,000 shares or 11.9% of the total outstanding series B shares.
In July 2002, the Government sold 312,000,000 shares or 3.1% of the total
outstanding series B shares.
	As of June 30, 2004, all of the Companys series B shares were listed on
the Jakarta Stock Exchange and Surabaya Stock Exchange and 45,595,946
ADS shares were listed on the New York Stock Exchange and London Stock
Exchange.
c.	Subsidiaries
	The Company consolidates the following subsidiaries as a result of
majority ownership or its right to control operations.

			Percentage of			Total assets
			ownership		Start of commercial	before eliminations
Subsidiaries	Domicile	Nature of business	2003	2004	operations	2003	2004
			%	%
PT Pramindo Ikat
Nusantara	Medan	Telecommunications construction & services	30.00	100.00	1995	1,816,946	1,639,756
PT AriaWest
International	Bandung	Telecommunications		100.00	1995		1,436,908
PT Multimedia
Nusantara	Jakarta	Pay TV	100.00	100.00	1998	14,861	11,142
PT Graha Sarana Duta	Jakarta	Real estate, construction and services	99.99	99.99	1982	51,368	69,871
PT Indonusa Telemedia	Jakarta	Multimedia	57.50	90.39	1997	50,695	53,450
PT Dayamitra
Telekomunikasi	Balikpapan	Telecommunications	90.32	90.32	1995	817,574	603,603
PT Telekomunikasi
Selular	Jakarta	Telecommunications	65.00	65.00	1995	13,465,108	18,063,586
PT Napsindo
Primatel
International	Jakarta	Telecommunications	60.00	60.00	1999	57,918	38,895
PT Infomedia Nusantara	Jakarta	Data and information service	51.00	51.00	1984	307,298	279,862
PT Pro Infokom
Indonesia	Jakarta	System information	51.00	51.00	2003	8,711	1,430

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

c.
The Company has indirect investments through its subsidiaries in the
following companies:

			Nature of	Effective ownership — percentage		Start of Commercial
Indirect subsidiaries	Stockholders	Domicile	Business	2003	2004	Operations
				%	%
Telekomunikasi Selular
Finance Limited	PT Telekomunikasi Selular	Mauritius	Fund raising	65.00	65.00	2002
Aria West International
Finance B.V.	PT AriaWest International	Netherlands	Finance		100.00	1996
PT Balebat Dedikasi
Prima	PT Infomedia Nusantara	Bogor	Printing		26.18	2000

| PT Pramindo Ikat Nusantara (Pramindo) |
| --- |
| Pramindo is the investor in KSO I (Note 52), the joint operating scheme
that provides telecommunications services in Sumatra. On
April 19, 2002, the Company entered into a Conditional Sale and Purchase Agreement
(CSPA) (as amended on August 1, 2002) to acquire 100% of the issued and
paid-up share capital of Pramindo (Note 6b). |
| Effective with the closing of the first tranche, the Company obtained
control over the operations of Pramindo and KSO Unit I. As a result, the
Company has consolidated Pramindo as of the date of the acquisition
reflecting a 100% ownership interest in Pramindo (Note 2b). |
| PT AriaWest International (AWI) |
| AWI is the investor in KSO III (Note 52), the joint operating scheme that
provides telecommunication services in West Java. On May 8, 2002, the
Company entered into a Conditional Sale and Purchase Agreement (CSPA)
to acquire 100% of the issued and paid-up capital of AWI. The acquisition
was effective on July 31, 2003, the date when the Company entered into
the First Amendment to the Conditional Sale and Purchase Agreement with
the stockholders of AWI in which both parties agreed to the Companys
acquisition of AWI (Note 6c). |
| The CSPA provides for certain conditions that have to satisfied at or
prior to the closing date to effect the acquisition, e.g. completion of
the restructuring of AWIs loan, amendment of KSO III agreement, final
and unconditional dismissal with prejudice of any proceeding. Those
conditions have been satisfied at or prior to July 31, 2003. |
| PT Multimedia Nusantara (Metra) |
| Metra is engaged in providing pay television and multimedia
telecommunications services. |

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( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

| c. |
| --- |
| PT Multimedia Nusantara (Metra) (continued) |
| On April 8, 2003, the Company increased its ownership interest in Metra
from 31% to 100% through a share-swap agreement with PT Indocitra
Grahabawana (Indocitra). Pursuant to the agreement, the Company sold
its investment in PT Menara Jakarta in exchange for Indocitras 69%
ownership interest in Metra (Note 13f). |
| PT Graha Sarana Duta (GSD) |
| GSD is currently engaged primarily in leasing of offices as well as
providing building management and maintenance services. |
| On April 6, 2001, the Company acquired a 100% ownership interest in GSD
from Koperasi Mitra Duta and Dana Pensiun Bank Duta, for a purchase
consideration of Rp119,000 million. This acquisition resulted in goodwill
of Rp106,348 million which is being amortized over a period of five years
(Note 17). |
| On November 28, 2001, the Company sold one share of GSD to a related
party for Rp9.5 million thereby reducing the Companys ownership interest
to 99.99%. |
| PT Indonusa Telemedia (Indonusa) |
| Indonusa is engaged in providing multimedia telecommunications services. |
| The Company increased its investment in Indonusa from 35% in 2000 to
57.5% in 2001, by acquiring 2,800,000 shares for Rp28,000 million. This
acquisition resulted in goodwill of Rp654 million which was fully
amortized in 2001. |
| On August 8, 2003, the Company increased its investment in Indonusa to
88.08% through a share-swap agreement with PT Centralindo Pancasakti
Cellular (CPSC) (Note 13). |
| Pursuant to the extraordinary meeting of stockholders of Indonusa on
October 29, 2003, Indonusa agreed to convert its payable to the Company
amounting to Rp13,500 million to 1,350,000 shares of Indonusa. Following
such conversion, the Companys ownership in Indonusa increased from
88.08% to 90.39%. |
| PT Dayamitra Telekomunikasi (Dayamitra) |
| Dayamitra is the investor in KSO VI (Note 52), the joint operating scheme
that provides telecommunications services in Kalimantan. The Companys
acquisition of a 90.32% ownership interest in Dayamitra was effective on
May 17, 2001, the date when the Deed of Share Transfer was signed. The
Company also entered into an Option Agreement to acquire the remaining
9.68% interest from the selling stockholders (Note 6a). |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

| c. |
| --- |
| PT Telekomunikasi Selular (Telkomsel) |
| Telkomsel is engaged in providing telecommunications facilities and
mobile cellular services using Global System for Mobile Communication
(GSM) technology on a nationwide basis. |
| The Companys cross-ownership transaction with Indosat in 2001 increased
the Companys ownership interest in Telkomsel to 77.72%. The accounting
treatment for the cross-ownership transaction is discussed further in
Note 4. |
| PT Telekomunikasi Selular (Telkomsel) (continued) |
| On April 3, 2002, the Company entered into a Conditional Sale and
Purchase Agreement (CSPA) with Singapore Telecom Mobile Pte. Ltd.
(Singtel). Pursuant to the agreement, the Company sold 23,223 ordinary
registered shares of Telkomsel, representing 12.72% of the issued and
paid-up capital of Telkomsel for a total consideration of US$429,000,000
(equivalent to Rp3,948,945 million). This transaction reduced the
Companys ownership in Telkomsel from 77.72% to 65%. |
| PT Napsindo Primatel Internasional (Napsindo) |
| Napsindo is engaged in providing Network Access Point (NAP), Voice
Over Data (VOD) and other related services. |
| In connection with an increase in Napsindos paid-in capital, the Company
increased its investment in Napsindo by Rp13,840 million on October 31,
2000. The increase in investment was made to maintain the Companys
ownership interest at 32% and was effective on March 29, 2001. |
| Based on the notarial Deed No. 47 dated December 30, 2002 of Notary H.
Yunardi, S.H., the Company purchased 28% of Napsindos shares from PT
Info Asia Sukses Makmur Mandiri for US$4,900,000 (equivalent to Rp43,620
million), thereby increasing the Companys ownership interest to 60%
after the settlement of payment on January 28, 2003. |
| PT Infomedia Nusantara (Infomedia) |
| Infomedia is engaged in providing telecommunications information services
and other information services in the form of print and electronic media.
In 2002, Infomedia established a new line of business to provide call
center services. |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

c.	Subsidiaries (continued)
	PT Pro Infokom Indonesia (PII)
	On January 29, 2003, the Company together with PT Indonesia Comnets Plus,
a subsidiary of Perusahaan Perseroan (Persero) PT Perusahaan Listrik
Negara (PLN), and PT Prima Infokom Indonesia established PT Pro Infokom
Indonesia (PII). The establishment was notarized by deed of A.
Partomuan Pohan, S.H., LLM., notary in Jakarta, under Article of
Association No. 24, dated January 29, 2003. As of June 30, 2004, the
Company had an ownership interest of 51% in PII.
	PII was established to develop a national information network system as
the back-bone for the development of the Indonesian e-Government. PII is
intended to maximize the utilization of both the Companys and PLNs
existing infrastructures.
	PII will act as a service provider that manages the government secure
intranet and government information center management where all
government institutions, including state-owned companies, are expected to
take advantage of this network.
	Pursuant to the Annual General Meeting of PII Shareholders as stated in
notarial deed No. 258/VI/2004 dated June 17, 2004 of A. Partomuan Pohan,
S.H., LL.M., the stockholders approved to discontinue the PII operation
since July 1, 2004.
	Telekomunikasi Selular Finance Limited (TSFL)
	Telkomsel has 100% direct ownership interest in TSFL, a company
established in Mauritius on April 22, 2002. TSFLs objective is to raise
funds for the development of Telkomsels business through the issuance of
debenture stock, bonds, mortgages or any other securities.
	Aria West International Finance B.V. (AWI BV)
	AWI BV, a company established in the Netherlands, is a wholly owned
subsidiary of AWI. AWI BV is engaged in rendering services in the field
of trade and finance.
	PT Balebat Dedikasi Prima (Balebat)
	Infomedia has 51.33% direct ownership interest in Balebat, a company
engaged in the printing business, domiciled in Bogor.
d.	Authorization of the financial statements
	The consolidated financial statements were authorized for issue by the
Board of Directors on July 30, 2004.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

| 2. |
| --- |
| The consolidated financial statements of the Company and subsidiaries have
been prepared in accordance with generally accepted accounting principles
in Indonesia (Indonesian GAAP). Indonesian GAAP varies in certain
significant respects to accounting principles generally accepted in the
United States of America (U.S. GAAP). Information relating to the nature
and effect of such differences is presented in Note 58. |

a.	Basis for preparation of financial statements
	The consolidated financial statements, except for the statements of cash
flows, are prepared on the accrual basis of accounting. The measurement
basis used is historical cost, except for certain accounts recorded on
the basis described in the related accounting policies.
	The consolidated statements of cash flows are prepared using the direct
method and present the changes in cash and cash equivalents from
operating, investing and financing activities.
	Figures in the consolidated financial statements are rounded to and
presented in millions of Indonesian Rupiah (Rp) unless otherwise
stated.
b.	Principles of consolidation
	The consolidated financial statements include the financial statements of
the Company and its subsidiaries in which the Company directly or
indirectly has ownership of more than 50%, or the Company has the ability
to control the entity, even though the ownership is less than or equal to
50%. Subsidiaries are consolidated from the date on which effective
control is obtained and are no longer consolidated from the date of
disposal. The Company does not consolidate a subsidiary if control is
expected to be temporary.
	All significant inter-company balances and transactions have been
eliminated in consolidation.
	In the case of PT Pramindo Ikat Nusantara (Pramindo), the Company has
evaluated the scope and terms of this investment and concluded that it
has the ability to exercise control over Pramindo and the right to obtain
all of the future economic benefits of ownership as though the Company
owned 100% of the shares. The factors that the Company considered
include, among others, the fact that the purchase price is fixed, its
ability to vote 100% of the shares at general stockholders meetings,
subject to certain protective rights retained by the selling
stockholders, its ability to appoint all of the board members and
management and its consequent ability to exclusively determine the
financial and operating policies of Pramindo subject to certain
protective rights, its issuance of irrevocable and unconditional
promissory notes in settlement of the purchase consideration to the
selling stockholders, the placement of the 70% of Pramindo shares not yet
transferred to the Company in an escrow account by the selling
stockholders and the protective provisions in the various agreements for
the Company to take over all shares (including powers of attorney issued
by the selling stockholders) or collapse the KSO arrangement once the
full amount payable for the shares has been paid (Note 6b).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004

( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

c.	Transactions with related parties
	The Company and subsidiaries have transactions with related parties. The
definition of related parties used is in accordance with Indonesian
Statement of Financial Accounting Standards (PSAK) No.7 Related Party
Disclosures.
d.	Acquisitions of subsidiaries
	The acquisition of a subsidiary from a third party is accounted for using
the purchase method of accounting. The excess of the acquisition cost
over the Companys interest in the fair value of identifiable assets
acquired and liabilities assumed is recorded as goodwill and amortized
using the straight-line method over a period of not more than five years.
	The acquisition transaction with entities under common control is
accounted for in a manner similar to that in pooling of interests
accounting (carryover basis). The difference between the consideration
paid or received and the related historical carrying amount, after
considering income tax effects, is recognized directly in equity and are
reported as Difference in value of restructuring transactions between
entities under common control in the stockholders equity section.
	The Company continually assesses whether events or changes in
circumstances have occurred that would require revision of the remaining
estimated useful life of goodwill, or whether there is any indication of
impairment. If any indication of impairment exists, the recoverable
amount of goodwill is estimated based on the expected future cash flows
which are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and
the risks specific to the asset.
e.	Foreign currency translation
	The functional currency of the Company and its subsidiaries is the
Indonesian Rupiah and the books of accounts of the Company and its
subsidiaries are maintained in Indonesian Rupiah. Transactions in foreign
currencies are translated into Indonesian Rupiah at the rates of exchange
prevailing at transaction date. At the balance sheet date, monetary
assets and monetary liabilities balances denominated in foreign
currencies are translated into Indonesian Rupiah based on the buy and
sell rates quoted by Reuters prevailing at the balance sheet date. The
Reuters buy and sell rates, applied respectively to translate monetary
assets and monetary liability balances, were Rp8,270 and Rp8,280 to US$1
as of June 30, 2003, and Rp9,375 and Rp9,405 to US$1 as of June 30, 2004.
	The resulting foreign exchange gains or losses, realized and unrealized,
are credited or charged to income of the current year, except for foreign
exchange differences incurred on borrowings during the construction of
qualifying assets which are capitalized to the extent that the borrowings
can be attributed to the construction of those qualifying assets (Note
2k).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

f.	Cash and cash equivalents
	Cash and cash equivalents consist of cash on hand and in banks and all
unrestricted time deposits with maturities of not more than three
months from the date of placement. For the purpose of the statements of
cash flows, bank overdrafts that are repayable on demand and form an
integral part of cash management of the Company and subsidiaries are
included as a component of cash and cash equivalents.
g.	Investments

i.	Time deposits
	Time deposits with maturities of more than three months are
presented as temporary investments.
ii.	Investments in securities
	Investments in available-for-sale securities are stated at fair
value. Unrealized holding gains or losses on available-for-sale
securities are excluded from income of the current year and are
reported as a separate component in the stockholders equity section
until realized. Realized gains or losses from the sale of
available-for-sale securities are recognized in the income of the
current year, and are determined on a specific-identification basis.
A decline in the fair value of any available-for-sale securities
below cost that is deemed to be other-than-temporary is charged to
income of the current year.
iii.	Investments in associated companies
	Investments in shares of stock in which the Company has 20% to 50%
of the voting rights, and over which the Company exerts significant
influence, but not control, over the financial and operating
policies are accounted for using the equity method. Under this
method, the Company recognizes the Companys proportionate share in
the income or loss of the associated company from the date that
significant influence commences until the date that significant
influence ceases. When the Companys share of loss exceeds the
carrying amount of the associated company, the carrying amount is
reduced to nil and recognition of further losses is discontinued
except to the extent that the Company has incurred obligations in
respect of the associated company.
	On a continuous basis, but no less frequently than at the end of
each year, the Company evaluates the carrying amount of its ownership interests in
investee companies for possible impairment. Factors considered in
assessing whether an indication of other than temporary impairment
exists include the achievement of business plan objectives and
milestones including cash flow projections and the results of
planned financing activities, the financial condition and prospects
of each investee company, the fair value of the ownership interest
relative to the carrying amount of the investment and other relevant
factors. Impairment to be recognized is measured based on the
amount by which the carrying amount of the investment exceeds the
fair value of the investment. Fair value is determined based on
quoted market prices (if any), projected discounted cash flows or
other valuation techniques as appropriate.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

iii.	Investments in associated companies (continued)
	Changes in the value of investments due to changes in the equity of
associated companies arising from capital transactions of such
associated companies with other parties are recognized directly in
equity and are reported as Difference due to change of equity in
associated companies in the stockholders equity section.
Differences previously credited directly to equity transactions in
associated companies are released to the statement of income upon
the sale of an interest in the associate in proportion with
percentage of the interest sold.
	The functional currency of PT Pasifik Satelit Nusantara and PT Citra
Sari Makmur is the U.S. Dollar. For the purpose of reporting these
investments using the equity method, the assets and liabilities of
these companies as of the balance sheet date are translated into
Rupiah using the rates of exchange prevailing at that date, while
revenues and expenses are translated into Rupiah at the average
rates of exchange for the year. The resulting translation
adjustments are reported as part of Translation adjustment in the
stockholders equity section.
iv.	Other investments
	Investments in shares of stock with ownership interests of less than
20% that do not have readily determinable fair values and are
intended for long-term investments are carried at cost and are
adjusted only for other-than-temporary decline in the value of
individual investments. Any such write-down is charged directly to
income of the current year.

| h. |
| --- |
| Trade and other accounts receivable are recorded net of an allowance
for doubtful accounts, based upon a review of the collectibility of the
outstanding amounts at the end of the year. Accounts are written off
against the allowance during the period in which they are determined to
be not collectible. |
| Trade and other accounts receivable are recorded at the invoiced
amount. The allowance for doubtful accounts is the Companys best
estimate of the amount of probable credit losses in the Companys
existing accounts receivable. The Company determines the allowance
based on historical write-off experience. The Company reviews its
allowance for doubtful accounts monthly. Past due balances over 90
days for retail customers are fully provided, and past due balance for
non-retail customers over a specified amount are reviewed individually
for collectibility. Account balances are charged off against the
allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. The Company does not have
any off-balance sheet credit exposure related to its customers. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

i.	Inventories
	Inventories principally consist of components and modules, which are
transferred to Plant, Property and Equipment upon use. Inventories
also include SIM card and prepaid voucher blanks.
	Cost is determined using the weighted average method for components,
SIM card and prepaid voucher blanks, and the specific-identification
method for modules.
	Allowance for obsolescence is primarily based on the estimated forecast
of future usage of these items.
j.	Prepaid expenses
	Prepaid expenses are amortized over their beneficial periods using the
straight-line method.
k.	Property, plant and equipment direct acquisitions
	Property, plant and equipment directly acquired are stated at cost,
except for certain revalued assets, less accumulated depreciation.
	Property, plant and equipment, except land, are depreciated using the
straight-line method, based on the estimated useful lives of the assets
as follows:

Buildings	20
Switching equipment	515
Telegraph, telex and data communication equipment	515
Transmission installation and equipment	520
Satellite, earth station and equipment	315
Cable network	515
Power supply	310
Data processing equipment	310
Other telecommunications peripherals	5
Office equipment	35
Vehicles	58
Other equipment	5

| Land is stated at cost and is not depreciated. |
| --- |
| When the carrying amount of an asset exceeds its estimated recoverable
amount, the asset is written down to its estimated recoverable amount,
which is determined based upon the greater of its net selling price or
value in use. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k.	Property, plant and equipment direct acquisitions (continued)
	The cost of maintenance and repairs is expensed as incurred.
Expenditures, which extend the useful life of the asset or result in
increased future economic benefits such as increase in capacity or
improvement in the quality of output or standard of performance, are
capitalized and depreciated based on the applicable depreciation rates.
	When assets are retired or otherwise disposed of, their carrying values
and the related accumulated depreciation are eliminated from the
consolidated financial statements, and the resulting gains or losses on
the disposal or sale of property, plant and equipment are recognized in
the statement of income.
	Computer software used for data processing is included in the value of
the associated hardware.
	Property under construction is stated at cost until construction is
complete, at which time it is reclassified to the specific property,
plant and equipment account it relates to. During the construction
period, borrowing costs, which include interest expense and foreign
exchange gains or losses incurred to finance the construction of the
asset, are capitalized in proportion to the average amount of
accumulated expenditures during the period. Capitalization of borrowing
cost ceases when the assets are ready for its intended use.
l.	Property, plant and equipment under capital leases
	Property, plant and equipment acquired under capital leases are stated
at the present value of minimum lease payments. At inception of the
lease, a corresponding liability, which equals to the present value of
minimum lease payments, is also recorded and subsequently reduced by
the principal component of each minimum lease payment. The interest
component of each minimum lease payment is recognized in the statement
of income.
	Leased assets are capitalized only if all of the following criteria are
met: (a) the lessee has an option to purchase the leased asset at the
end of the lease period at a price agreed upon at the inception of the
lease agreement, and (b) the sum of periodic lease payments, plus the
residual value, will cover the acquisition price of the leased asset
and related interest, and (c) there is a minimum lease period of 2
years.
	Leased assets are depreciated using the same method and over the same
estimated useful lives used for directly acquired property, plant and
equipment.
m.	Revenue-sharing arrangements
	The Company records assets under revenue-sharing agreements as
Property, plant and equipment under revenue-sharing arrangements
(with a corresponding initial credit to Unearned income under
revenue-sharing arrangements presented in the Liabilities section of
the balance sheet) based on the costs incurred by the investors as
agreed upon in the contracts entered into between the Company and the
investors. Property, plant and equipment are depreciated over their
estimated useful lives using the straight-line method.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

m.	Revenue-sharing arrangements (continued)
	Unearned income related to the acquisition of the property, plant and
equipment under revenue-sharing arrangements is amortized over the
revenue-sharing period using the straight-line method.
	At the end of the revenue-sharing period, the respective property,
plant and equipment under revenue-sharing arrangements are reclassified
to the Property, plant and equipment account.
	Revenue earned under revenue-sharing arrangements is recognized on the
basis of the Companys share as provided in the agreement.
n.	Joint operation schemes
	Revenues from joint operation schemes include amortization of the
investors initial payments, Minimum Telkom Revenues (MTR) and the
Companys share of Distributable KSO Revenues (DKSOR).
	Unearned initial investor payments received as compensation from the
KSO Investors are presented net of all direct costs incurred in
connection with the KSO agreement and are amortized using the
straight-line method over the KSO period of 15 years starting from
January 1, 1996.
	MTR are recognized on a monthly basis based upon the contracted MTR
amount for the current year, in accordance with the KSO agreement.
	The Companys share of DKSOR is recognized on the basis of the
Companys percentage share of the KSO revenues, net of MTR and
operational expenses of the KSO Units, as provided in the KSO
agreements.
	Under PSAK No. 39, Accounting for Joint Operation Schemes, which
supersedes paragraph 14 of PSAK No. 35, Accounting for
Telecommunication Services Revenue, the assets built by the KSO
Investors under the Joint Operation Schemes are recorded in the books
of the KSO Investors which operate the assets and are transferred to
the Company at the end of the KSO period or upon termination of the KSO
agreement.

o.	Deferred charges for landrights
	Costs incurred to process and extend the landrights are deferred and
amortized using the straight-line method over the term of the
landrights.
p.	Revenue and expense recognition

| i. |
| --- |
| Revenues from fixed line installations are recognized at the time
the installations are placed in service. Revenues from usage
charges are recognized as customers incur the charges. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

p. Revenue and expense recognition (continued)

| ii. |
| --- |
| Revenues from service connections (connection fees) are recognized
as income at the time the connections occur. Revenues from airtime
(for cellular) and monthly subscription charges are recognized as
accessed and as earned. Revenues from prepaid card customers,
which consist of the sale of starter packs, also known as
Subscriber Identification Module (SIM) cards in the case of
cellular and Removable Unit Identity Card (RUIM) in the case of
fixed wireless telephone, and pulse reload vouchers, are
recognized as follows: |

| 1. | Sale of starter packs is recognized as revenue
upon delivery of the starter packs to distributors, dealers
or directly to customers. |
| --- | --- |
| 2. | Sale of pulse reload vouchers is recognized
initially as unearned income and recognized proportionately
as revenue based on successful calls made by the subscribers
or whenever the unused stored value of the voucher has
expired. |

| iii. |
| --- |
| Revenues from network interconnection with other domestic and
international telecommunications carriers are recognized as
incurred and are presented net of interconnection expenses. |

Expenses are recognized on an accrual basis.

q. Pension benefits

| i. |
| --- |
| The Company and certain subsidiaries established defined benefit
pension plans covering substantially all of their permanent
employees. |
| The Companys net obligation in respect of the defined benefit
pension plans is calculated at the net present value of estimated
future benefits that the employees have earned in return for their
service in the current and prior periods, deducted by any plan
assets. The calculation is performed by an independent actuary
using the projected unit credit method. |
| The benefits earned by the employees are recognized in the
statement of income on a straight-line basis over the period until
the benefits become vested. To the extent that the benefits vest
immediately, the expense is recognized immediately in the
statement of income. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Pension benefits (continued)

| ii. |
| --- |
| Early retirement benefits are accrued at the time the Company
makes a commitment to provide early retirement benefits as a
result of an offer made in order to encourage voluntary
redundancy. The Company is demonstrably committed to a termination
when, and only when, the Company has a detailed formal plan for
the early retirement and is without realistic possibility of
withdrawal. |

r. Employee benefits other than pension

i.	Long service awards (LSA)
	The Companys employees are entitled to receive certain cash
awards based on length of service requirement. The benefits are
either paid at the time the employee reaches certain anniversary
dates during employment, upon retirement or at the time of
termination.
	The Companys obligation with respect to LSA is calculated by an
independent actuary using the projected unit credit method.
ii.	Post-retirement health care plan
	The Company provides a post-retirement health care plan that
covers its retired employees who meet age, participation and
length of service requirements at retirement, and their eligible
dependants.
	The Companys obligation with respect to post-retirement health
care plan is calculated by an independent actuary using the
projected unit credit method.

| s. |
| --- |
| The Company and subsidiaries apply the asset and liability method of
accounting for income tax. Under this method, deferred tax assets and
liabilities are recognized for temporary differences between the
financial and tax bases of assets and liabilities at each reporting
date. This method also requires the recognition of future tax benefits,
such as the benefit of tax loss carry forwards, to the extent their
realization is probable. Deferred tax assets and liabilities are
measured using enacted or substantially enacted tax rates at each
reporting date which are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. |
| Income tax is charged or credited in the statement of income, except to
the extent that it relates to items recognized directly in equity, in
which case it is also recognized directly in equity. |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

t.	Earnings per share and earnings per American Depositary Share (ADS)
	Basic earnings per share is computed by dividing net income by the
weighted average number of shares outstanding during the year. Net
income per ADS is computed by multiplying basic earnings per share by
20, the number of shares represented by each ADS.
u.	Segment information
	The Company and its subsidiaries segment information is presented
based upon identified business segments. A business segment is a
distinguishable unit that provides different products and services and
is managed separately. Business segment information is consistent with
operating information routinely reported to the Companys chief
operating decision maker.
	Segment information is prepared in conformity with the accounting
policies adopted for preparing and presenting the consolidated
financial statements.
v.	Derivative instruments
	Derivative transactions are accounted for in accordance with PSAK 55,
Accounting for Derivative Instruments and Hedging Activities which
requires that all derivative instruments be recognized in the financial
statements at fair value. To qualify for hedge accounting, PSAK 55
requires certain criteria to be met, including documentation required
to have been in place at the inception of the hedge.
	Changes in fair value of derivative instruments that do not qualify for
hedge accounting are recognized in the statement of income. If a
derivative instrument are designated and qualify for hedge accounting,
changes in fair value of derivative instruments are recorded as
adjustments to the assets or liabilities being hedged in the income of
the current year or in the stockholders equity, depending on the type
of hedge transaction represented and the effectiveness of the hedge.
w.	Use of estimates
	The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Significant items subject to such estimates and assumptions
include the carrying amount of property, plant and equipment and
intangible assets, valuation allowance for receivables and obligations
related to employee benefits. Actual results could differ from those
estimates.

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3.	TRANSLATION OF RUPIAH INTO UNITED STATES DOLLARS
	The consolidated financial statements are stated in Rupiah. The
translations of Rupiah amounts into United States Dollars are included
solely for the convenience of the readers and have been made using the
average of the market buy and sell rates of Rp9,390 to US$1 published by
Reuters on June 30, 2004. The convenience translations should not be
construed as representations that the Rupiah amounts have been, could have
been, or could in the future be, converted into United States Dollars at
this or any other rate of exchange.
4.	RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED
	As further explained in Note 53a, the Company was informed by the United
States Securities and Exchange Commission (SEC) that its Annual Report
on Form 20-F for 2002 submitted on April 17, 2003 was not in compliance
with the SECs rules and regulations. The Company was required to amend
that report, which it did on June 11, 2003, to identify the deficiencies
in its originally submitted Annual Report.
	The Company is also required to make a further amendment to its Annual
Report on Form 20-F to bring it into compliance with the relevant rules
and regulations. Furthermore, the Indonesian Capital Markets Supervisory
Agency (BAPEPAM) confirmed that the Company should comply with the
requirements of the SEC and at the same time ensure that the same
information is made available to all shareholders.
	Subsequent to the issuance of the consolidated financial statements in the
Annual Report on Form 20-F for the year ended December 31, 2002 and the
amendment thereto that was filed with the SEC on June 11, 2003 referred to
above, the Company made certain adjustments to the Indonesian GAAP amounts
previously disclosed for 2000, 2001, 2002 and prior years which the
Company believes are required to be made pursuant to Indonesian GAAP.
Adjustments affecting the U.S. GAAP amounts and disclosures are set out in
Note 58.
	Set forth below are the effects of the restatements on the previously
reported consolidated net income and stockholders equity for the six
months period ended June 30, 2003. The corrections of the Indonesian GAAP
consolidated financial statements primarily relate to the accounting for
long service awards, deferred income taxes and business acquisitions, as
well as the assumptions underlying the Companys post-retirement
healthcare plan.

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| 4. |
| --- |
| Set forth below are the effects of the restatements on the previously
reported consolidated net income for the six months period ended June 30,
2003 (unaudited): |

| Net income under Indonesian GAAP
as previously reported | | 3,784,267 | |
| --- | --- | --- | --- |
| Adjustments | | | |
| Long service awards | (i) | (103,563 | ) |
| Post retirement healthcare benefit | (ii) | (222,004 | ) |
| Deferred income taxes | (iii) | 22,441 | |
| Acquisition accounting | (iv) | 130,898 | |
| Operating revenues | (v) | 96,560 | |
| Trade accounts payable | (vi) | | |
| Corrections of loan balance | (vii) | | |
| Corrections of tax payable | (viii) | | |
| Other items | (ix) | 257,288 | |
| Corporate income tax | (x) | | |
| Operating expenses | (xi) | (354,031 | ) |
| Interest expense | (xii) | 1,029 | |
| Net periodic pension cost | (xiii) | (74,804 | ) |
| Net adjustments | | (246,186 | ) |
| Net income under Indonesian GAAP
as restated | | 3,538,081 | |
| Basic earnings per share (full amount) | | | |
| As previously reported | | 375.42 | |
| As restated | | 351.00 | |
| Basic earnings per ADS (full amount) | | | |
| As previously reported | | 7,508.47 | |
| As restated | | 7,019.97 | |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

4.
The effect of the restatements on stockholders equity as of June 30, 2003
is set forth in the table below:

Stockholders equity under Indonesian GAAP as previously reported			16,319,441
Adjustments
Long service awards	(i	)	(555,899	)
Post retirement healthcare benefits	(ii)		(1,273,065	)
Deferred income taxes	(iii)		(3,271	)
Acquisition accounting	(iv)		(177,128	)
Operating revenues	(v	)	119,741
Trade accounts payable	(vi)		58,490
Corrections of loan balance	(vii)		117,078
Corrections of taxes payable	(viii)		75,796
Other items	(ix)		281,845
Corporate income taxes	(x	)	121,143
Operating expenses	(xi)		(461,111	)
Interest expenses	(xii)		(26,024	)
Net periodic pension cost	(xiii)		(142,278	)
Acquisition of AriaWest	(xiv)		332,933
Net adjustments			(1,531,750	)
Stockholders equity under Indonesian GAAP as restated			14,787,691

These adjustments have been reflected in the accompanying restated consolidated financial statements and are summarized as follows:

Adjustments

| (i) |
| --- |
| The Companys employees are entitled to receive certain cash awards,
such as long service, housing, transport and other allowances, based on
length of service. Depending on the type of award, they are either paid
at the time an employee reaches a certain anniversary date or upon
termination or retirement if the employee has met the requisite number
of years of service. The Company had not previously made provision for
these liabilities and was only accounting for the awards at the time
payments were made to employees. |

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RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

| | The Company has determined that these awards should have been accounted
for under the accrual method. |
| --- | --- |
| (ii) | Post-retirement healthcare benefits |
| | The Company provides a post-retirement healthcare plan for pensioners
who were employed by the Company for over 20 years. As described in
Notes 2r and 48 of the consolidated financial statements these costs
are accounted for in accordance with U.S. GAAP applying SFAS 106. The
Company has been recognizing the benefit obligations and the related
benefit costs based on actuarial calculations. |
| | The Company has requested the Companys actuary to review the actuarial
calculations in respect of disclosures for the post-retirement
healthcare plan for the years 2000 and 2001. As a consequence of this
review, the Company recalculated the portion of related expenses for
the six months period ended June 30, 2003. |
| | The Company has determined that the change in actuarial calculations
represents the correction of an error and therefore requires
retroactive restatement of its 2000 and 2001 financial statements. The
Company did not previously engage an actuary for 2002, however, has
done so for the purpose of these restated financial statements. |
| (iii) | Deferred income taxes |
| | The Company has identified the need to make adjustments to correct
errors in prior calculations of deferred income taxes to reflect
certain temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial
statements. |
| (iv) | Acquisition accounting |
| | In respect of the acquisition of Pramindo in August 2002, the Company
previously consolidated a 30% interest in Pramindo in accordance with
the 30% legal ownership interest in the shares held by the Company. The
Company did not, however, consider other factors affecting its ability
to exercise control over Pramindo and its right to obtain all of the
future economic benefits of ownership as though the Company owned 100%
of the shares. The factors that the Company has now considered include,
among others, the fact that the selling price is fixed, its ability to
vote 100% of the shares at general stockholders meetings, subject to
certain protective rights retained by the selling stockholders, its
ability to appoint all of the board members and management and its
consequent ability to exclusively determine the financial and operating
policies of Pramindo subject to certain protective rights, as a
consequence, the Company has determined that consolidation of a 100%
interest in Pramindo from the date of acquisition is appropriate. |
| | In addition, in connection with the acquisition of Pramindo in August
2002 and Dayamitra in May 2001, the Company did not properly allocate
the purchase consideration to certain acquired assets. The restated
consolidated financial statements for 2001 and 2002 reflect adjustments
to record such assets at their fair values as of the date of
acquisition and subsequent depreciation thereof. |

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RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

(v)	Operating revenues
	In line with the Infomedia business progress that have provide call
center service, the Company decided to reclassify the presentation from
other income to operating income.
(vi)	Trade accounts payable
	As a result of the reconciliation of balances with other telephone
operators in 2002, the Company determined that there were some errors
in trade accounts payable balances that resulted in an overstatement of
the payables recorded in the consolidated financial statements as of
June 2003.
(vii)	Correction of loan balance
	As a result of reconciliation of outstanding loans at the end of 2002,
the Company determined that there was a double recording of a loan
balance which had a corresponding effect of overstating the foreign
exchange loss in the consolidated financial statements for the six
monthe period ended june 30, 2003.
(viii)	Correction of taxes payable
	As a result of audited financial statements for the year 2003, the
Company adjusted the tax payable as of June 30, 2003.
(ix)	Other items
	Other adjustments represent adjustments related to depreciation and
reversal expenses resulted by year end audit of 2002.
(x)	Corporate income tax
	Certain of the above adjustment have also impacted the corporate tax
calculation for the 2001 and 2002 tax years. As a result, the Company
has reflected the related adjustments to the corporate tax charge in
the restated consolidated financial statements for the respective
years.
(xi)	Operating expenses
	Restatement for operating expenses represents the reclassification for
amortisation of intangible assets that previously presented as part of
other expenses into part of operating expenses-general and
administrative expenses.
(xii)	Interest expenses
	Adjustment for interest expenses related to the capitalisation of
interest expense into assets.

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RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

(xiii)	Net periodic pension cost
	The Company assigned actuary to recalculate net periodic pension cost
for the year 2002 and the Company has adjusted effect of the
recalculation in its financial statement for six months period ended
June 30, 2003.
(xiv)	AriaWest
	Subsequent to the date on which the Company issued the 2002
consolidated financial statements, the Company settled its dispute with
AriaWest. In the previously issued consolidated financial statements
for 2002, the Company had made provisions against its trade receivables
relating to the dispute with AriaWest and recorded Rp830 billion
received from KSO III as Advances from customers and suppliers in the
balance sheet pending settlement of the dispute. As a result of the
settlement, the Company has reversed these provisions, applied the
advance received against the outstanding trade receivable, and accrued
the settlement amount.

CROSS-OWNERSHIP TRANSACTIONS WITH INDOSAT

On April 3, 2001, the Company signed a Conditional Sale and Purchase Agreement with Indosat, for a series of transactions to consolidate their cross-ownership in certain companies. The transactions under the agreement are as follows:

| i. | Acquisition by the Company of Indosats 35% equity interest in
Telkomsel for US$945,000,000 (Telkomsel Transaction); |
| --- | --- |
| ii. | Acquisition by Indosat of the Companys 22.5% equity interest in
PT Satelit Palapa Indonesia (Satelindo) for US$186,000,000
(Satelindo Transaction); |
| iii. | Acquisition by Indosat of the Companys 37.66% equity interest in
PT Aplikanusa Lintasarta (Lintasarta) for US$38,000,000 plus
convertible bonds of Rp4,051 million issued by Lintasarta (Lintasarta
Transaction); and |
| iv. | The acquisition by Indosat of all of the Companys rights and
novation of all of the Companys obligations, under the KSO IV
Agreement dated October 20, 1995, between the Company and PT Mitra
Global Telekomunikasi Indonesia (MGTI), together with all of the
Companys assets being used as KSO IV assets, for US$375,000,000 (KSO
IV Transaction). |

| Lintasartas convertible bonds were subsequently converted into shares,
thereby reducing the Companys 37.66% equity interest to 37.21% prior to
the consummation of the Lintasarta Transaction. |
| --- |
| The Telkomsel and Lintasarta Transactions were consummated on May 16, 2001
based on Deed of Share Transfer No. 1/V/2001/triplo and No. 2/V/2001/duplo,
respectively, of Notary Ny. Liliana Arif Gondoutomo, S.H. |
| The Satelindo Transaction was consummated on July 23, 2001 after DeTeAsia
Holding GmbH and PT Bimagraha Telekomindo (the other Satelindo
stockholders) waived their pre-emptive rights on 7.26% and 13.06% of
Satelindos shares, respectively. |

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CROSS-OWNERSHIP TRANSACTIONS WITH INDOSAT (continued)

| On February 1, 2002, the Company and Indosat announced the cancellation of
the KSO IV Transaction. As a result, the Company settled this portion of
the cross-ownership transaction in cash. |
| --- |
| At the time of the transaction, the Government was the majority and
controlling shareholder of both the Company and Indosat. Accordingly, the
Telkomsel, Satelindo and Lintasarta Transactions have been accounted for as
a restructuring of entities under common control. The Companys acquisition
of a controlling interest in Telkomsel was accounted for in a manner
similar to that of pooling of interests accounting (carryover basis).
Accordingly, for reporting purposes, the financial statements of the
Company and those of Telkomsel have been combined, as if they had been
combined from the beginning of the earliest period presented. The effects
of the transactions between the Company and Telkomsel before the
combination were eliminated in preparing the combined financial statements.
The difference between the consideration paid or received and the
historical amount of the net assets of the investee acquired or carrying
amount of the investment sold, is included as a component of stockholders
equity as Difference in value of restructuring transactions between
entities under common control, as follows: |


Consideration		amount of
paid/		net assets/	Deferred	Change
(received)		investment	income tax	in equity		Total		Tax		Net
Telkomsel	10,782,450		1,466,658	337,324			8,978,468				8,978,468
Satelindo	(2,122,260	)			(290,442	)	(2,412,702	)	(627,678	)	1,785,024	)
Lintasarta	(437,631	)	116,834				(320,797	)	(119,586	)	(201,211	)
Total	8,222,559		1,583,492	337,324	(290,442	)	6,244,969		(747,264	)	6,992,233

ACQUISITION OF KSO INVESTORS

| a. |
| --- |
| On May 17, 2001, the Company acquired 90.32% of the shares of Dayamitra
for an aggregate purchase price of US$134,172,232 (including
consultants fees of approximately US$3,303,191 or Rp37,325 million).
Pursuant to the terms of the agreement, the Company paid the initial
payment amount of US$18,289,800 (Rp206,675 million) on May 17, 2001, the
closing date of the transaction, and US$8,937,041 (Rp100,989 million) on
August 10, 2001 as a post-closing working capital adjustment to the
purchase price. The remaining amount of US$103,642,200 (Rp1,171,157
million) was paid through an escrow arrangement discussed below, in
eight quarterly installments of US$12,955,275, from August 17, 2001 to
May 17, 2003. The estimated present value of US$103,642,200 at the
discount rate of 14% was estimated to be US$89,053,984 (Rp1,006,310
million). |
| This acquisition resulted in the identification of an intangible asset
amounting to Rp1,276,575 million representing the right to operate the
business in the KSO Area. The amount is being amortized over the
remaining term of the KSO agreement (Note 17). |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITION OF KSO INVESTORS (continued)

a.
The Company acquired control of Dayamitra on May 17, 2001 and has
consequently consolidated Dayamitra from that date.
The allocation of the acquisition cost for the 90.32% ownership in
Dayamitra was as follows:

| Purchase
consideration - net of discount on promissory notes | 1,351,299 | |
| --- | --- | --- |
| Fair value of net assets acquired: | | |
| - Cash and cash equivalents | 93,652 | |
| - Distributable KSO revenue receivable | 62,398 | |
| - Other current assets | 9,450 | |
| - Property, plant and equipment | 1,401,479 | |
| - Intangible assets | 1,276,575 | |
| - Other non-current assets | 19,510 | |
| - Current liabilities | (236,265 | ) |
| - Deferred tax liabilities | (581,816 | ) |
| - Non-current liabilities | (693,684 | ) |
| | 1,351,299 | |

| Net cash outflow on the acquisition of Dayamitra amounted to Rp241,300
million. |
| --- |
| In connection with the Dayamitra transaction, the Company also entered
into the following agreements: |

| 1. |
| --- |
| The Company entered into an Option Agreement with TM Communications
(HK) Ltd (TMC), providing the Company with an option to acquire the
remaining 9.68% equity interest in Dayamitra, referred to as the
Option Share. Under the agreement, TMC, the selling stockholder,
granted the Company an exclusive option to purchase full and legal
title to the Option Share (the Call Option), and the Company granted
the selling stockholder an exclusive option to sell to the Company
full legal title to those shares (the Put Option). |
| In consideration for the grant of the options, the Company will pay to
the selling stockholder the option purchase price of US$6,300,000,
plus US$957,823 as payment for Dayamitras adjusted working capital,
or a total of US$7,257,823. The amount is payable in eight quarterly
installments of US$907,228, beginning on August 17, 2001 and ending on
May 17, 2003. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITION OF KSO INVESTORS (continued)

a. Dayamitra (continued)

1.	Option Agreement (continued)
	Payments will be made through an escrow account established under the
Escrow Agreement discussed below.
	The Company may exercise the option any time after Dayamitra has
satisfied all of its obligations under the JBIC (formerly J-Exim) loan
(Note 27i) beginning on May 17, 2003 and until five business days
prior to March 26, 2006. The strike price payable by the Company to
the selling stockholder for the Option Shares upon exercise of the
option is US$16,200,000, less certain amounts that are stipulated in
the Option Agreement. As of June 30, 2004 the Company has not
exercised the option.
	As of June 30, 2004, the option purchase price that has been paid by
the Company amounted to US$7,257,823 or equivalent to Rp65,458 million
(2003: US$5,443,367 or equivalent to Rp48,098 million), and is
presented as part of Advance payments for investments in shares of
stock (Note 6d).
2.	Escrow Agreement
	An Escrow Agreement dated May 17, 2001, was entered into by and among
the Company, Dayamitra, PT Intidaya Sistelindomitra (Intidaya),
Cable and Wireless plc (C&W plc), PT Mitracipta Sarananusa
(Mitracipta), TMC, Tomen Corporation (Tomen), Citibank N.A.
Singapore (the Singapore Escrow Agent) and Citibank N.A. Jakarta (the
Jakarta Escrow Agent), to establish an Escrow Account and facilitate
the payment (Note 18).

| b. |
| --- |
| On April 19, 2002, the Company and the stockholders of Pramindo, namely
France Cables et Radio SA, PT Astratel Nusantara, Indosat, Marubeni
Corporation, International Finance Corporation (IFC) and NMP Singapore
Pte. Ltd. (NMP Singapore) (collectively the Selling Stockholders)
entered into a Conditional Sale and Purchase Agreement (CSPA) pursuant
to which the Company acquired all of Pramindos shares. The Selling
Stockholders shares were transferred to an escrow account (hereafter
referred as escrow shares). |
| Legal title to the escrow shares will be transferred to Telkom in 3
(three) specific tranches on 15 September 2002 30%, 30 September 2003
15% and on 31 December 2004 55% upon payment of the promissory notes
issued to the selling stockholders as payment for the acquisition of
the shares. The escrow shares can be accessed by the selling stockholders
only upon default on payment of the promissory notes by the Company and
no dividends can be paid out until the arrangements between the parties
are completed or terminated in accordance with the terms of the relevant
agreements. |

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ACQUISITION OF KSO INVESTORS (continued)

| b. |
| --- |
| The Company and the Selling Stockholders also entered into a
Stockholders Voting Agreement (SVA) on August 15, 2002, pursuant to
which each stockholder of Pramindo delivered to the Company a Power of
Attorney (PoA) whereby the Company obtained the right to vote the
escrow shares. The Company, thereby acquired the right to nominate all
of the members of the Board of Directors and Board of Commissioners of
Pramindo. The SVA is subject to certain reserve matters which serve as
protective rights to the Selling Stockholders. |
| The aggregate purchase price amounted to US$390,308,972 (Rp3,464,040
million) plus Rp250,000 million, represented by an initial payment of
approximately US$9,263,953 (Rp82,218 million), consultants fees of
US$5,945,946 (Rp52,818 million), working capital reimbursement of
Rp250,000 million, and the issue by Telkom of Promissory Notes (series I
and series II) with an aggregate face value of US$375,099,073, of which
the present value at the discount rate of 8.15% at the effective date of
the acquisition was estimated to be US$332,802,122 (Rp2,953,617
million). The series I promissory notes are non-interest bearing and the
series II promissory notes carry a market interest rate. The Promissory
Notes are to be paid in 10 unequal quarterly installments beginning
September 15, 2002 and are irrevocable, unconditional and transferable. |
| The total purchase consideration was allocated first to the net monetary
assets and then the fixed assets acquired. An intangible asset of
Rp2,752,267 million was identified representing right to operate the
business in the KSO Area. The amount is being amortized over the
remaining term of the KSO agreement (Note 17). There was no goodwill
arising from this acquisition. |
| In addition, the portion that relates to Indosats 13% equity interest
in Pramindo has been accounted for as a restructuring of entities under
common control. The difference between the purchase consideration and
the historical amount of the net assets acquired amounting to Rp296,038
million, included as Difference in value of restructuring transactions
between entities under common control in the stockholders equity
section is calculated as follows: |

| Purchase
consideration - net of discount on promissory notes | 3,338,653 |
| --- | --- |
| Historical amount of net assets | 1,061,437 |
| Difference in value for 100% ownership | 2,277,216 |
| Difference adjusted to stockholders equity for
Indosats 13% ownership in Pramindo | 296,038 |

The Company acquired control of Pramindo on August 15, 2002 and has consequently consolidated Pramindo from August 1, 2002 being the nearest convenient balance date.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITION OF KSO INVESTORS (continued)

b.
The allocation of the acquisition cost was as follows:

| Purchase
consideration - net of discount on promissory notes | 3,338,653 | |
| --- | --- | --- |
| Fair value of net assets acquired: | | |
| - Cash and cash equivalents | 141,475 | |
| - Distributable KSO revenue receivable | 187,468 | |
| - Other current assets | 13,839 | |
| - Property, plant and equipment | 1,807,338 | |
| - Intangible assets | 2,752,267 | |
| - Other non-current assets | 160,139 | |
| - Current liabilities | (284,120 | ) |
| - Deferred tax liabilities | (1,115,645 | ) |
| - Non-current liabilities | (620,146 | ) |
| Fair value of net assets | 3,042,615 | |
| Difference adjusted to equity for 13% Indosats ownership in Pramindo | 296,038 | |
| Total purchase consideration | 3,338,653 | |

| | Net cash outflow on the acquisition of Pramindo amounted to Rp243,561
million. |
| --- | --- |
| | The outstanding promissory notes before unamortized discount issued for
the acquisition of Pramindo are presented as Liabilities for
acquisitions of subsidiaries in the consolidated balance sheets as of
June 30, 2003 amounted to Rp2,079,640 (US$221 million) (Note 28). As of
June 30, 2004, the promissory notes has been paid subsequent to obtain
of loan from ABN Amro Bank (Note 23). |
| c. | PT AriaWest International (AWI) |
| | Effective on July 31, 2003 (the closing date), the Company acquired
100% of the outstanding common stock of AWI, the investor in KSO III,
for approximately Rp1,141,752 million plus the assumption of AWIs debts
of Rp2,577,926 million. The purchase consideration included
non-interest bearing promissory notes with a face value of
US$109,090,909 (Rp927,272 million), of which the present value at the
discount rate of 5.16% at the closing date was estimated to be
US$92,743,741 (Rp788,322 million). The promissory notes are to be paid
in 10 equal semi-annual installments beginning July 31, 2004. |

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ACQUISITION OF KSO INVESTORS (continued)

| c. |
| --- |
| The acquisition of AWI has been accounted for using the purchase method
of accounting. There was no goodwill arising from this acquisition.
The following table summarizes the final purchase price allocation of
the acquired assets and assumed liabilities based on estimates of their
respective fair values at the closing date: |

Distributable KSO revenue receivable	540,267
Property, plant and equipment	1,556,269
Intangible assets	1,982,564
Other assets	34,372
Deferred tax liabilities	(393,794	)
Fair value of net assets acquired	3,719,678
Borrowings assumed	(2,577,926	)
Amount of cash and promissory notes given up	1,141,752

| The Companys consolidated results of operations include the operating
results of AWI since July 31, 2003, the date of acquisition. |
| --- |
| The outstanding promissory notes issued for the acquisition of AWI are
presented as Liabilities for acquisitions of subsidiaries in the
consolidated balance sheet as of June 30, 2004 (Note 28). As of June
30, 2004 the outstanding promissory notes, before unamortized discount,
amounted to US$109,090,909 (Rp1,026,000 million). |
| The purchase price described above was based on third party appraisal.
In addition, the Company also entered into a settlement agreement with
AWI pursuant to which the Company and AWI irrevocably settled,
discharged, and released claims and counterclaims in their ICC
arbitration proceeding, and the Company agreed to pay a settlement
amount of US$20,000,000. |

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ACQUISITION OF KSO INVESTORS (continued)

d. Advance payments for investments in shares of stock

Dayamitra (Note 6a)	65,458	65,458
PIN	16,135
AWI	197,490
	279,083	65,458

Advance payment for investment in shares of AWI represented advance amounting to Rp197,490 million paid to the former stockholders of AWI upon the signing of the Conditional Sale and Purchase Agreement on May 8, 2002.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CASH AND CASH EQUIVALENTS

Cash on hand	15,235	21,834
Cash in banks
Related parties
Rupiah
Bank Negara Indonesia	58,269	241,768
Bank Mandiri	124,867	41,120
Bank Rakyat Indonesia	3,468	27,449
Bank Pos Nusantara	1,987	2,595
Total	188,591	312,932
Foreign currencies
Bank Mandiri	45,394	55,145
Bank Negara Indonesia	9,470	1,390
Bank Rakyat Indonesia	4,874	576
Total	59,738	57,111
Total - related parties	248,329	370,043
Third parties
Rupiah
Citibank	20,271	2,417
Bank Bukopin	8,355	60,796
Bank Central Asia	7,013	4,977
Bank Niaga	54	1,225
ABN Amro Bank	48	99,751
Bank Danamon		112
Lippo Bank	75	3,379
Bank International Indonesia	6	11
Bank Buana Indonesia	1	193
Bank Muamalat Indonesia		76
Bank Mega	100	1,236
Deutsche Bank	232	10,477
Total	36,155	184,650
Foreign currencies
Citibank	2,060	2,706
Deutsche Bank	19,846	1,638
Standard Chartered Bank	115	97
ABN Amro Bank	41	30,986
Bank Internasional Indonesia	27	17
Bank Central Asia	93	71
Bank of Tokyo Mitsubishi	111	120
Total	22,293	35,635
Total - third parties	58,448	220,285
Total cash in banks	306,777	590,328

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CASH AND CASH EQUIVALENTS (continued)


Time deposits
Related parties
Rupiah
Bank Mandiri	913,007	1,144,266
Bank Rakyat Indonesia	316,655	777,320
Bank Negara Indonesia	210,250	835,925
Bank Tabungan Negara	52,545	241,860
Total	1,492,457	2,999,371
Foreign currencies
Bank Mandiri	1,270,534
Bank Negara Indonesia	10,987	141,343
Total	1,281,521	141,343
Total - related parties	2,773,978	3,140,714
Third parties
Rupiah
Standard Chartered Bank	124,127	710,950
Bank Mega	73,621	86,606
Bank Bukopin	132,685	88,302
Bank Yudha Bhakti	2,000
Bank Niaga	1,000	44,337
Deutsche Bank	103,580	1,001,540
Bank Danamon	105	60,145
ABN Amro Bank		3,000
Bank NISP		69,449
Bank Bumiputera		18,303
Bank Tugu	40,000	14,500
Bank Jabar		70,449
Total	477,118	2,167,581
Foreign currencies
Standard Chartered Bank		526,363
Deutsche Bank	381,876	536,844
Total	381,876	1,063,207
Total - third parties	858,994	3,230,788
Total time deposits	3,632,972	6,371,502
Total cash and cash equivalents	3,954,984	6,983,664

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7.
Range of interest rates per annum for time deposits is as follows:

Rupiah	8.00% - 12.50 %	4.75% - 6.5 %
Foreign currencies	1.38% - 2.25 %	0.60% - 0.75 %

TEMPORARY INVESTMENTS


Time deposits
Related parties
Rupiah
Bank Mandiri	26,540
US Dollar
Bank Mandiri	62,119
	88,659
Third parties
Bank Danamon		16,460
Bank Mega		12,745
Bank Niaga		13,550
Total time deposits	88,659	42,755
Available-for-sale securities
Reksadana certificate		10,111
Total available-for-sale securities		10,111
Total temporary investments	88,659	52,866

Range of interest rates per annum for time deposits is as follows:

Rupiah	12.25 %	6.50% - 7.29 %

| The terms of time deposits range from 3 months to 1 year. |
| --- |
| Reksadana certificate represent short term investment in mutual fund
sertificate with fixed income amounted to Rp10 billion issued by PT Bahana
TCW Investment Management, a related party. The Company will receive
monthly dividend from the investment |
| Investments placed with related parties have similar interest rates, terms
and conditions as those placed with third parties. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TRADE ACCOUNTS RECEIVABLE

a.
Related parties:

KSO Units	2003 — 1,153,611		2004 — 276,740
Government agencies	157,533		255,235
PT Mandara Selular Indonesia
(formerly PT Mobile Selular
Indonesia)	44,457		37,141
PT Citra Sari Makmur	82,343		21,693
PT Bakrie Telecom (formerly PT Radio Telepon Indonesia)	13,117
PT Komunikasi Selular Indonesia*	14,612
PT Metro Selular Nusantara*	5,126
PT Patra Telekomunikasi Indonesia	7,889		11,540
PT Aplikanusa Lintasarta	13,757		4,279
PT Telesera	19,676
Other	2,581		3,781
Total	1,514,702		610,409
Allowance for doubtful accounts	(150,050	)	(142,263	)
Net	1,364,652		468,146

no longer related parties in 2004

| Trade accounts receivable from certain related parties are presented net
of the Companys liabilities to such parties due to legal right of offset
in accordance with agreements with those parties. |
| --- |
| Third parties: |

Residential and business subscribers	2,317,259		3,008,667
Overseas international carriers	59,098		90,854
Others	58,296		77,634
Total	2,434,653		3,177,155
Allowance for doubtful accounts	(331,832	)	(485,479	)
Net	2,102,821		2,691,676

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TRADE ACCOUNTS RECEIVABLE (continued)

b.
Related parties:

Up to 6 months	394,470		419,736
7 to 12 months	441,170		44,757
13 to 24 months	317,213		29,686
More than 24 months	361,849		116,230
Total	1,514,702		610,409
Allowance for doubtful accounts	(150,050	)	(142,262	)
Net	1,364,652		468,146

Third parties:

Up to 3 months	2,102,821		2,691,676
More than 3 months	331,832		485,479
Total	2,434,653		3,177,155
Allowance for doubtful accounts	(331,832	)	(485,479	)
Net	2,102,821		2,691,676

c.
Related parties

Rupiah	1,451,605		490,765
United States Dollar	63,097		119,644
Total	1,514,702		610,409
Allowance for doubtful accounts	(150,050	)	(142,263	)
Net	1,364,652		468,146

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TRADE ACCOUNTS RECEIVABLE (continued)

c.
Third parties

Rupiah	2,421,664		3,097,913
United States Dollar	12,989		79,242
Total	2,434,653		3,177,155
Allowance for doubtful accounts	(331,832	)	(485,479	)
Net	2,102,821		2,691,676

d. Movements in the allowance for doubtful accounts

Beginning balance	502,989		443,892
Additions	54,374		218,196
Bad debts write-off	(75,481	)	(34,347	)
Ending balance	481,882		627,741

| Management believes that the allowance for doubtful receivables is
adequate to cover probable losses on uncollectible accounts. |
| --- |
| Except for the amounts receivable from Government Agencies, management
believes that there are no significant concentrations of credit risk on
these receivables. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INVENTORIES


Components:
Telephone terminals and spare parts	36,151		25,358
Cable and transmission installation spare parts	15,224		1,540
Other spare parts	13,311		13,603
Total	64,686		40,501
Allowance for obsolescence	(25,794	)	(12,835	)
Net	38,892		27,666
Modules:
Cable and transmission installation spare parts	56,031		55,922
Telephone terminals and spare parts	39,176		37,592
Other spare parts	272		272
Total	95,479		93,786
Allowance for obsolescence	(22,851	)	(28,855	)
Net	72,628		64,931
SIM cards and prepaid voucher blanks	45,304		47,383
Allowance for obsolescence	(626	)	(336	)
Net	44,678		47,047
Total	156,198		139,644

Movements in the allowance for obsolescence are as follows:

Beginning balance	53,795		40,489
Additions	2,581		2,265
Inventory write-off	(7,105	)	(728	)
Ending balance	49,271		42,026

Management believes that the allowance is adequate to cover probable losses from decline in inventory value due to obsolescence.

At June 30, 2004, inventory held by a certain subsidiary was insured against fire, theft and other specified risks for US$750,000. Management believes that the insurance amount is adequate to cover such risks.

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PREPAID EXPENSES

Pension cost (Note 46)	186,792	229,323
Rental	383,279	203,210
Salary	165,091	112,743
Insurance	16,318	18,943
Other	27,625	128,679
Total	779,105	692,898

12.
This account consists of time deposits and restricted funds at the
following banks:

Bank Mandiri	22,009	162,114
Deutsche Bank and Citibank	81,314	1,188
Total	103,323	163,302

| a. |
| --- |
| As of June 30, 2003, the balance consists of the Companys time deposits
of US$4,600,000 pledged as collateral for credit facility obtained by
Napsindo. |
| As of June 30, 2004, the balance consists of the Companys time deposits
of US$13,795,660 (Rp129,334 million) pledged as collateral for credit
facility obtained by Napsindo (Note 23a) and Rp32,780 million pledged as
collateral for bank guarantees. |

| b. |
| --- |
| As of June 30, 2003, the balance consists of Telkomsels security
deposits in Deutsche Bank and Citibank totaling Rp81,314 million for
letter of credit facilities (Note 23b), As of June 30, 2004, the balance
consists of Telkomsels deposits in Citibank in relation to the office
rental. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

LONG-TERM INVESTMENTS


Percentage				Equity in
of	Opening	Addition /		net income	Translation		Ending
ownership	balance	(deduction)		(loss)	adjustment		balance
Equity method:
PT Citra Sari Makmur	25.00	62,270	(2,158	)	979	(5,035	)	56,056
PT Telekomindo Selular Raya	100.00	26,642	(918	)				25,724
PT Metro Selular Nusantara	20.17	16,307	2					16,309
PT Patra Telekomunikasi Indonesia	30.00	12,843			3,381			16,224
PT Napsindo Primatel International	32.00	4,693	(4,693	)
PT Multimedia Nusantara	31.00	1,928	(1,928	)
PT Mandara Selular Indonesia	25.00
PT Pasifik Satelit Nusantara	22.57
		124,683	(9,695	)	4,360	(5,035	)	114,313
Cost method:
PT Batam Bintan Telekomunikasi	5.00	587						587
PT Komunikasi Selular Indonesia	14.20	57,570						57,570
PT Pembangunan Telekomunikasi
Indonesia	3.18	199						199
Medianusa Pte. Ltd.	9.44	108						108
		58,464						58,464
		183,147	(9,695	)	4,360	(5,035	)	172,777

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

LONG-TERM INVESTMENTS (continued)


Percentage			Equity in
of	Opening	Addition /	net income	Translation	Ending
ownership	balance	(deduction)	(loss)	adjustment	balance
Equity method:
PT Citra Sari Makmur	25.00	52,422		1,829	7,846	62,097
PT Patra Telekomunikasi Indonesia	30.00	11,332		995		12,327
PT Pasifik Satelit Nusantara	43.69
		63,754		2,824	7,846	74,424
Cost method:
PT Batam Bintan Telekomunikasi	5.00	587				587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199				199
PT Mandara Selular Indonesia	7.44
Medianusa Pte. Ltd.	9.44	108				108
		894				894
		64,648		2,824	7,846	75,318

On August 8, 2003, the Company and PT Centralindo Pancasakti Cellular (CPSC) signed a share-swap agreement (KMT-IP share-swap transaction) in which the Company delivered its 14.20% outstanding shares in PT Komunikasi Selular Indonesia (Komselindo), its 20.17% outstanding shares in PT Metro Selular Nusantara (Metrosel), and its 100% outstanding shares in PT Telekomindo Selular Raya (Telesera) to CPSC. In return, CPSC delivered its 30.58% outstanding shares in PT Indonusa Telemedia (Indonusa), 21.12% outstanding shares in PT Pasifik Satelit Nusantara (PSN) under certain terms and paid cash of Rp5,398 million to the Company.

From the KMT IP share-swap transaction, the Company recognized a loss of Rp47.3 billion being the difference between the fair value of assets received and the carrying amount of the Companys investments given to CPSC, and reversal of difference due to change of equity in Metrosel previously recognized directly in equity.

| a. |
| --- |
| CSM is engaged in providing Very Small Aperture Terminal (VSAT),
network application services and consulting services on
telecommunications technology and related facilities. |

| b. |
| --- |
| Patrakom is engaged in providing satellite communication system services
and related services and facilities to companies in the petroleum
industry. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

LONG-TERM INVESTMENTS (continued)

| c. |
| --- |
| In 2001, the Minister of Justice and Human Rights approved the corporate
restructuring of PT Telekomindo Primabhakti (Telekomindo), an
associated company engaged in the construction and development of
telecommunications facilities. Pursuant to the restructuring,
Telekomindos authorized and paid-up capital was reduced and the capital
reduction became the paid-up capital of two new companies: PT
Telekomindo Media Informatika (TMI) and PT Griya Insani Primabhakti
(GIP). |
| Based on a share-swap agreement dated December 5, 2001 among the
Company, PT Rajawali Corporation (RC), Telekomindo and TMI, the
parties agreed on the following: |

| | The Company sold its investments in Telekomindo, TMI and
GIP to RC for Rp101,838 million and recognized a gain of Rp101,838
million. |
| --- | --- |
| | TMI sold its investments in PT Telekomindo Selular Raya
(Telesera) and the fixed assets of PT Multisaka Mitra (MSM) to
the Company for Rp87,907 million and Rp17,442 million,
respectively. |

| This transaction resulted in the Company owning 69.77% shares of
Telesera as of December 31, 2001. In 2002, the Company acquired the
remaining 30.23% interest in Telesera from Dana Pensiun Telkom for
Rp38,093 million. In 2002, the Company also recognized a loss of
Rp101,000 million to write down the carrying amount of this investment
to net asset value. As of December 31, 2002, the carrying amount of this
investment was Rp26,642 million. |
| --- |
| On August 8, 2003, the Company exchanged its investment in Telesera to
CPSC. |

| d. |
| --- |
| Metrosel is engaged in providing national mobile cellular services and
related facilities in Central Java, Yogyakarta, East Java, Maluku and
Irian Jaya. |
| On May 30, 2002, Metrosel made an equity call. The Company made
additional capital contributions amounting to Rp13,513 million to
maintain its ownership in Metrosel at 20.17%. |
| On August 8, 2003, the Company exchanged its investment in Metrosel to
CPSC. |

e.
PSN is engaged in providing satellite transponder leasing and
satellite-based communication services in the Asia Pacific Region.
In 2001, Management decided to recognize the decline in value of this
investment due to the financial condition of PSN.

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LONG-TERM INVESTMENTS (continued)

| e. |
| --- |
| On August 8, 2003, as a result of share-swap transaction with CPSC, the
Company interest in PSN effectively increased to 43.69%. |
| In 2003, PSN entered into a negotiation with its current creditors to
restructure its debts. Up to the date of this report, the debt
restructuring has not yet been effective. |

| f. |
| --- |
| MJ was engaged in the construction and the operation of towers and
related facilities. The economic difficulties faced by Indonesia have
resulted in the termination of MJs construction projects at the end of
1997. The value of this investment has been reduced to nil. |
| On April 8, 2003, the Company exchanged all its shares in MJ to PT
Indocitra Grahabawana (Indocitra) for Indocitras 69% ownership
interest in Metra (Note 1c). |

| g. |
| --- |
| BBT is engaged in providing fixed line telecommunication services at
Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan
Beach International Resort and Bintan Industrial Estate in Bintan
Island. |

h.
Bangtelindo is primarily engaged in providing consultancy services on
the installation and maintenance of telecommunications facilities.

| i. |
| --- |
| Medianusa Pte. Ltd. is an associated company of Infomedia, which is
engaged as a sales agent, in search of advertisers for telephone
directories. |

| j. |
| --- |
| Komselindo is a joint venture between the Company and PT Elektrindo
Nusantara (Elektrindo), and is engaged in providing analog mobile
cellular services. These services were previously provided by the
Company under a revenue-sharing arrangement with Elektrindo. |

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LONG-TERM INVESTMENTS (continued)

| j. |
| --- |
| Based on the Deed of Komselindos Stockholders Extraordinary General
Meeting No. 110 dated October 10, 2000, which was notarized by Ny. R.
Arie Soetardjo, S.H., the Company agreed to the conversion of Rp92,750
million of receivables from Komselindo into equity in order to maintain
a 35% ownership interest. |
| In 2001, the Company recorded the conversion of the receivables into
equity and recognized a loss upon the write-down of the new carrying
amount of the investment amounting to Rp92,750 million. |
| On August 30, 2002, Komselindos stockholders through an Extraordinary
Stockholders Meeting approved the equity call for debt restructuring
which was included in the Settlement Agreement and the Settlement,
Termination and Release Agreement dated August 30, 2002. The Company
released and waived its pre-emptive right to subscribe newly issued
shares resulting in the dilution of the Companys ownership in
Komselindo to 14.20%. |
| This debt restructuring transaction resulted in a net equity of
Komselindo amounting to Rp405,421 million. As of December 31, 2002, the
Company recorded its 14.20% interest in Komselindo at its net equity
value of Rp57,570 million. |
| On August 8, 2003, the Company sold its investment in Komselindo to
CPSC. |

| k. |
| --- |
| Mobisel is engaged in providing mobile cellular services and related
facilities. These services were previously provided by the Company under
a revenue-sharing arrangement with PT Rajasa Hazanah Perkasa (RHP).
The capital contribution made by the Company of Rp10,398 million
represented a 25% equity ownership in Mobisel. |
| On July 28, 2003, Mobisels stockholders agreed to a restructuring
program which included a debt to equity conversion of Mobisels
interconnection payables to the Company, and an equity investment by a
new stockholder. The debt conversion was completed in August 2003 which
resulted in dilution of the Companys interest to 7.44%. |
| As of December 31, 2003, the value of investment has been reduced to
nil. |
| Subsequently, in January 2004, the Companys ownership interest was
further diluted to 6.4% following the debt to equity in conversion of
Mobiles debt to PT Property Java, Boston Investment Limited and Inquam
(Indonesia) Limited Company. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT

2003	Additions	Deductions		Reclassifications		2003
At cost or revalued amounts:
Direct ownership
Land	267,933	28,831	(25	)	2,375		299,114
Buildings	1,658,390	3,289	(28,226	)	38,512		1,671,965
Switching equipment	9,629,203	24,990			4,136,376		13,790,569
Telegraph, telex and data
communication equipment	206,667				(10,614	)	196,053
Transmission installation and
equipment	10,340,314	604	(2,614	)	(1,109,495	)	9,228,809
Satellite, earth station and
equipment	5,798,011	6,865			235,139		6,040,015
Cable network	13,122,336	165,033	(28,127	)	687,804		13,947,046
Power supply	1,032,534	3,506	(1,358	)	30,827		1,065,509
Data processing equipment	2,739,837	11,147	(60	)	140,032		2,890,956
Other telecommunications
peripherals	681,363	25,600	(21	)	(165,699	)	541,243
Office equipment	639,682	6,083	(811	)	29,708		674,662
Vehicles	187,353	770	(400	)	4,169		191,892
Other equipment	87,370	11,076	(23	)	20,442		118,865
Property under construction:
Buildings	42,913	49,714			(43,467	)	49,160
Switching equipment	348,286	874,995			(1,158,902	)	64,379
Transmission installation and
equipment	139,499	1,915,233			(2,041,398	)	13,334
Satellite, earth station and
equipment	264,029	222,528			(258,874	)	227,683
Cable network	115,420	836,534			(593,193	)	358,761
Power supply	5,715	6,929			(10,922	)	1,722
Data processing equipment	10,807	135,992			(139,719	)	7,080
Other telecommunications
peripherals	13,649	6,431			(5,664	)	14,416
Leased assets
Vehicles	3,640				(3,640	)
Total	47,334,951	4,336,150	(61,665	)	(216,203	)	51,393,233
Accumulated depreciation:
Direct ownership
Buildings	736,997	52,604	(28,226	)	1,624		762,999
Switching equipment	4,569,287	476,124			573,935		5,619,346
Telegraph, telex and data
communication equipment	202,043	732			(3,020	)	199,755
Transmission installation and
equipment	3,183,736	577,589			(589,193	)	3,172,132
Satellite, earth station and
equipment	2,001,671	95,642	(2,614	)	99,431		2,194,130
Cable network	5,286,209	1,426,963	(10,564	)	(6,160	)	6,696,448
Power supply	724,985	34,017	(1,358	)	3,066		760,710
Data processing equipment	990,054	217,189	(83	)	226		1,207,386
Other telecommunications
peripherals	499,093	16,897	(21	)	(109,752	)	406,217
Office equipment	460,518	25,199	(661	)	9,774		494,830
Vehicles	167,226	6,311	(420	)	1,600		174,717
Other equipment	63,020	8,442			17,516		88,978
Leased assets
Vehicles	1,506				(1,506	)
Total	18,886,345	2,937,709	(43,947	)	(2,459	)	21,777,648
Net Book Value	28,448,606						29,615,586

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PROPERTY, PLANT AND EQUIPMENT (continued)

2004	Additions	Deductions		Reclassifications		2004
At cost or revalued amounts:
Direct ownership
Land	298,964	9,207	(2,385	)			305,786
Buildings	1,819,095	3,491	(643	)	70,274		1,892,217
Switching equipment	10,473,392	41,205	(2,949	)	45,917		10,557,565
Telegraph, telex and data
communication equipment	199,314						199,314
Transmission installation and
equipment	16,818,179	50,305	(527,293	)	2,305,619		18,646,810
Satellite, earth station and
equipment	6,209,827	1,721	(163,490	)	263,103		6,311,161
Cable network	15,488,797	9,263	(144,916	)	92,026		15,445,170
Power supply	1,149,458	1,869	(2,869	)	19,966		1,168,424
Data processing equipment	3,252,667	200,226	(21,787	)	29,730		3,460,836
Other telecommunications
peripherals	735,188		(363	)	145		734,970
Office equipment	660,491	34,622	(543	)	3,485		698,055
Vehicles	187,853	196	(4,004	)	26		184,071
Other equipment	107,573	359	(4,835	)	7,117		110,214
Property under construction:
Buildings	54,888	68,384			(63,282	)	59,990
Switching equipment	158,056	2,221			(9,265	)	151,012
Transmission installation and
equipment	93,907	2,082,323			(1,929,664	)	246,566
Satellite, earth station and
equipment	607,172	229,917					837,089
Cable network	14,524	862,025			(719,225	)	157,324
Power supply	106	5,225			(322	)	5,009
Data processing equipment	10,526	37,057			(23,764	)	23,819
Other telecommunications
peripherals	16,483	182			(1,890	)	14,775
Leased assets
Vehicles	239						239
Total	58,356,699	3,639,798	(876,077	)	89,996		61,210,416
Accumulated depreciation:
Direct ownership
Buildings	812,319	55,201	(530	)	2,986		869,976
Switching equipment	5,266,488	313,495	(667	)	29,261		5,608,577
Telegraph, telex and data
communication equipment	194,249	475					194,724
Transmission installation and
equipment	4,956,895	1,314,932	(473,176	)	20,739		5,819,390
Satellite, earth station and
equipment	2,158,379	75,183	(163,490	)			2,070,072
Cable network	6,613,281	656,296	(3,555	)	9,837		7,275,859
Power supply	797,925	44,102	(382	)	3,276		844,921
Data processing equipment	1,469,816	244,438			544		1,714,798
Other telecommunications
peripherals	572,190	38,508	(20,977	)	36		589,757
Office equipment	497,467	24,207	(532	)	(37	)	521,105
Vehicles	173,134	1,998	(3,984	)			171,148
Other equipment	69,302	6,953					76,255
Leased assets
Vehicles	114						114
Total	23,581,559	2,775,788	(667,293	)	66,642		25,756,696
Net Book Value	34,775,140						35,453,720

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PROPERTY, PLANT AND EQUIPMENT (continued)

Proceeds from sale of property, plant and equipment	56,326	3,704
Net book value	88	2,027
Gain on sale	56,238	1,677

| Interest capitalized to property under construction amounted to Rp11,462
million and Rp nil during six months period ended June 30, 2003 and 2004,
respectively. |
| --- |
| The Company and its subsidiaries own several pieces of land located
throughout Indonesia with Building Use Rights (Hak Guna Bangunan or HGB)
for a period of 20-30 years, which will expire between 2004-2032.
Management believes that there will be no difficulty in obtaining the
extension of the land rights when they expire. |
| Some of the Companys land of 330,690 sqm is still under the name of other
parties including, among others, the Ministry of Tourism, Post and
Telecommunications and the Ministry of Communications of the Republic of
Indonesia. The transfer to the Company of the legal title of ownership on
those parcels of land is still in progress. |
| The estimated date of completion of assets under construction is up to
January 2005. Management believes that there is no impediment to the
completion of the construction in progress. |
| As of June 30, 2004, property, plant and equipment of the Company and
subsidiaries, except for land, were insured with various insurance
companies against fire, theft and other specified risks for a coverage of
Rp22,518,012 million and US$1,982,291,950. In addition, the Palapa B4 and
Telkom-1 satellites are insured for US$59,456,265. Management believes that
the insurance coverage is adequate. |
| For the six months period ended June 30, 2004, Telkomsel accelerated the
depreciation of IN hardware amounted to Rp 205 billion due to modernization
of equipment, and then written off its related carrying cost as well as
accumulated depreciation amounted to Rp 395.4 billion. |
| Certain property, plant and equipment of the Company and subsidiaries have
been pledged as collateral for lending agreements (Notes 27, 29 and 30). |

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| 15. |
| --- |
| Set forth below are the Companys property, plant and equipment (included
in Note 14 above) that are being managed, operated and maintained by the
KSOs: |

Land	59		201
Buildings	111,819		170,598
Switching equipment	546,745		554,272
Telegraph, telex and data communication
equipment	26,344		26,344
Transmission installation and equipment	262,606		267,430
Satellite, earth station and equipment	50,420		50,420
Cable network	621,848		692,109
Power supply	76,001		89,696
Data processing equipment	31,542		32,630
Other telecommunications peripherals	40,402
Office equipment	17,656		30,737
Vehicles	10,053		10,143
Other equipment	326		326
Property under construction	58,856		3,322
Total cost	1,854,677		1,928,228
Accumulated depreciation	(1,311,823	)	(1,474,185	)
Net book value	542,854		454,043

The fixed assets under joint operation scheme decreased in 2003 due to the acquisition and consolidation of AWI, the investor in KSO III (Note 6c).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS

2003	Additions	Deductions	Reclassifications		2003
At cost:
Land	3,160					3,160
Buildings	23,727					23,727
Switching equipment	623,757		5,897	(3,256	)	626,398
Transmission installation and
equipment	107,558		9,416	(5,115	)	111,859
Cable network	333,188					333,188
Other telecommunications
peripherals	129,196		2,211	(500	)	130,907
Total	1,220,586		17,524	(8,871	)	1,229,239
Accumulated depreciation:
Land	1,278	80				1,358
Buildings	10,411	593				11,004
Switching equipment	360,637	21,871	5,897	(3,256	)	385,149
Transmission installation and
equipment	95,198	4,651	9,416	(5,115	)	104,150
Cable network	246,244	14,332				260,576
Other telecommunications
peripherals	129,196		2,211	(500	)	130,907
Total	842,964	41,527	17,524	(8,871	)	893,144
Net Book Value	377,622					336,095

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PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS (continued)

2004	Additions	Deductions		2004
At cost:
Land	3,160	15,811			18,971
Buildings	20,255	103,601	(7,058	)	116,798
Switching equipment	537,890	821,754	(47,470	)	1,312,174
Transmission installation
and equipment	93,028	589,473	(20,739	)	661,762
Cable network	318,381	1,229,241	(11,454	)	1,536,168
Other telecommunications
peripherals	123,972	13,495	(3,276	)	134,191
Total	1,096,686	2,773,375	(89,997	)	3,780,064
Accumulated depreciation:
Land	1,449	66			1,515
Buildings	9,804	3,568	(3,529	)	9,843
Switching equipment	341,525	61,906	(31,462	)	371,969
Transmission installation
and equipment	89,720	28,438	(20,739	)	97,419
Cable network	225,175	107,697	(7,636	)	325,236
Other telecommunications
peripherals	123,972	2,276	(3,276	)	122,972
Total	791,645	203,951	(66,642	)	928,954
Net Book Value	305,041				2,851,110

In accordance with revenue-sharing arrangements agreements, ownership rights to the property, plant and equipment under revenue-sharing arrangements are legally retained by the investors until the end of the revenue-sharing period.

The unearned income on revenue-sharing arrangements is as follows:

Gross amount	1,096,686		3,870,061
Accumulated amortization:
Beginning balance	(1,077,789	)	(984,954	)
Addition (Note 39)	(42,353	)	(193,490	)
Deduction	137,243		15,056
Ending balance	(982,899	)	(1,163,388	)
Net	113,787		2,706,673

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INTANGIBLE ASSETS

Intangible assets	3,582,506	4,769,654
License - net	6,221
Net	3,588,727	4,769,654

Movement of intangible assets during 2003 and 2004 is as follows:


Intangible Assets					Goodwill
Dayamitra		Pramindo		AWI	GSD		Total
Beginning balance	1,161,428		2,658,050			72,667		3,892,145
Additions
Amortization	(114,487	)	(184,518	)		(10,635	)	(309,640	)
Ending balance	1,046,942		2,473,532			62,032		3,582,506


Intangible Assets						Goodwill
Dayamitra		Pramindo		AWI		GSD		Total
Beginning balance	932,455		2,289,014		1,871,184		51,397		5,144,050
Additions
Amortization	(66,604	)	(163,501	)	(133,656	)	(10,635	)	(374,396	)
Ending balance	865,851		2,125,513		1,737,528		40,762		4,769,654

The intangible assets resulted from the acquisitions of Dayamitra, Pramindo and AWI, and represent the right to operate the business in the KSO areas. Goodwill resulted from the acquisition of GSD (Note 1c).

The license represented the Nationwide DCS 1800 Operations and License for Nationwide DCS 1800 Radio Frequency Spectrum Utilization held by Telkomsel which was fully amortized in 2003.

ESCROW ACCOUNTS

Escrow accounts consist of the following:

Citibank N.A., Singapore	118,660	618,175
JP Morgan Chase Bank	167,495
Bank Mandiri		6,123
	286,155	624,298

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ESCROW ACCOUNTS (continued)

a. Citibank N.A., Singapore

| 1) | This escrow account with Citibank N.A., Singapore
(Dayamitra Escrow Agent) was established to facilitate the
payment of the Companys obligations under the Conditional Sale
and Purchase Agreement and Option Agreement entered into with the
selling stockholders of Dayamitra (Note 6a). |
| --- | --- |
| | In accordance with the Escrow Agreement, the Company made the first
installment payment of US$14,343,750 on May 17, 2001. Further monthly
installments of US$6,250,000 for twenty four months are required by the
agreement. The Company is also obliged to make additional installment
payments necessary to settle the obligation on the due dates and to maintain
a minimum balance of US$14,343,750. |
| | The escrow account earns interest at LIBOR minus 0.75% per annum, which is
computed on a daily basis. The interest income earned is included as part of
the escrow funds. The remaining funds available will be transferred to the
Company after all of the obligations related to the Dayamitra transaction
are satisfied. |
| 2) | This escrow account also consist the Companys account with Citibank
N.A., Singapore (CDMA Samsung Project Agent) to facilitate payment of
the Companys loan to Korean Exim Bank. |
| | In accordance with the Escrow Agreement, each disbursements from Korean Exim
should be put into escrow account and will be paid to Samsung based on
request of payment from Telkom. The escrow account earns interest at LIBOR
minus 0.75% per annum, which is computed on a daily basis. The interest
income earned is included as part of the escrow funds. |

b.	JP Morgan Chase Bank
	This escrow account with JP Morgan Chase Bank (Pramindo Escrow
Agent) was established to facilitate the settlement of the Companys
obligations under its Conditional Sale and Purchase Agreement for the
acquisition of Pramindo (Note 6b).
	In accordance with the Escrow Agreement, the Company will make installment
payments of US$12,800,000 for eleven months and US$15,000,000 for sixteen
months. The first installment was due on October 1, 2002.
	The escrow account earns interest at LIBOR minus 0.4% per annum, which is
computed on a daily basis. The interest income earned will be included as part
of the escrow funds. The remaining funds available will be transferred to the
Company after all of the obligations related to the Pramindo transaction are
satisfied.
c.	Bank Mandiri
	The escrow account with Bank Mandiri was established by Dayamitra
in relation with the credit facilities from Bank Mandiri (Note 27f).

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TRADE ACCOUNTS PAYABLE


Related parties
Payables to other telecommunications carriers	98,267	271,497
Concession fees	192,448	349,285
Purchases of equipment, materials and services	41,636	52,845
Others	100,458	94,351
Total	432,809	767,978
Third parties
Purchases of equipment, materials and services	1,485,610	2,387,315
Payables related to revenue-sharing arrangements	79,240	126,423
Payables to other telecommunication providers	34,136	120,113
Total	1,598,986	2,633,851
Total	2,031,795	3,401,829

Trade accounts payable by currency are as follows:

Rupiah	1,680,780	2,197,961
U.S. Dollars	319,943	1,186,786
Euro	9,530	15,390
Japanese Yen	18,363	23
Great Britain Pound Sterling	3,059	1,495
Singapore Dollars	120	174
Total	2,031,795	3,401,829

20. ACCRUED EXPENSES

Early retirement benefits	322,622	84,598
Salaries and employee bonuses	453,219	592,796
Interest and bank charges	177,779	343,677
General, administrative and marketing	181,083	385,338
Operations, maintenance and telecommunications services	217,165	480,263
Other	45	925
Total	1,351,912	1,887,597

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UNEARNED INCOME

Prepaid pulse reload vouchers	415,819	729,412
Telephone directory	163,880	2,211
Other telecommunication services	11,625	9,235
Other	6,240	6,011
Total	597,564	746,869

| 22. |
| --- |
| Represent security deposits received from customers related to
services and performance guarantee deposits from suppliers related to
procurement contracts. |

SHORT-TERM BANK LOANS

Bank Mandiri		41,946
ABN Amro Bank		731,649
Total		773,595

| On August 28, 2001, Napsindo entered into a loan agreement with Bank Mandiri
amounting to US$1,800,000 for a oneyear term. The loan is secured with the
Companys time deposits (Note 12) with interest rate at 2% above the pledged
time deposits interest rate (i.e. 3% as of December 31, 2003). On November 11,
2003, the facility was extended until August 28, 2004. On April 24, 2003,
Napsindo obtained a new loan from Bank Mandiri amounting to US$2,660,000 for a
oneyear term. The loan is secured by the Companys time deposits and bears
interest at 2% above the pledged time deposits interest rate. The facility can
be extended upon approval by the Company. Subsequently, on May 4, 2004, this
loan facility was extended for another one-year term and will expire on April
24, 2005. As of June 30, 2004, principal outstanding under these facilities
amounted to US$4,460,000 (Rp41,946 million). |
| --- |
| On January 28, 2004, the Company signed a short-term loan agreement with
ABN-AMRO Bank NV Jakarta Branch (ABN-AMRO) in the amount of approximately
US$130,000,000. The loan was used to re-purchase the outstanding promissory
notes on March 15, 2004 which were issued for the acquisition of the Pramindo
(Note 6b). The loan and interest is payable to ABN-AMRO in 10 monthly
installments from March 2004 to December 2004. The loan bears floating interest
rate of LIBOR + 2.75%. The outstanding loan as of June 30, 2004 amounted to
Rp731,649 million (US$77,793,573). |

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MATURITIES OF LONG-TERM LIABILITIES

a. Current maturities

Two-step loans	25	884,167	887,768
Bank loans	27	170,627	1,005,189
Liabilities for acquisitions of subsidiaries	28	456,457	205,200
Suppliers credit loans	29	319,426
Bridging loan	30	51,336
Other		599
Total		1,882,612	2,098,157

b. Long-term portion

Notes	Total	2005	2006	2007	2008	Later
Two-step loans	25	6,750.8	495.3	810.9	691.0	615.8	4,137.8
Guaranteed notes	26	759.0			759.0
Bonds	26	983.9			983.9
Bank loans	27	2,569.8	999.4	903.8	492.3	174.3
Liabilities for acquisitions
of subsidiaries	28	718.3		205.2	205.2	205.2	102.7
Other long-term debt		9.1					9.1
Total		11,790.9	1,494.7	1,919.9	3,131.4	995.3	4,249.6

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| 25. |
| --- |
| Two-step loans are loans, which were obtained by the Government
from overseas banks and a consortium of contractors, which are then
re-loaned to the Company. The loans entered into up to July 1994 were
recorded and are payable in Rupiah based on the exchange rate at the
date of draw-down. Loans entered into after July 1994 are payable in
their original currencies and any resulting foreign exchange gain or
loss is borne by the Company. |
| The details of the two-step loans are as follows: |

Currencies — 2003	2004	2003		2004
Overseas banks	2.95%-17.51 %	3.00%-13.25 %	7,574,950		7,226,865
Consortium of contractors	3.20%-17.51 %	2.20%-13.25 %	259,425		411,689
Total			7,834,375		7,638,554
Current maturities			(884,167	)	(887,767	)
Long-term portion			6,950,208		6,750,786

Details of two-step loans obtained from overseas banks as of June 30, 2003 and 2004 are as follows:

Currencies — 2003	2004	2003	2004
U.S. Dollars	3.85%-8.70 %	4.00%-7.69 %	3,100,572	3,076,589
Rupiah	12.00%-17.51 %	7.33%-8.45 %	3,316,678	2,600,506
Japanese Yen	2.95 %	3.10 %	1,218,473	1,360,152
Euro	7.18%-8.30 %	6.69%-13.25 %	198,652	189,618
Total			7,834,375	7,226,865

The loans are intended for the development of telecommunications infrastructure and supporting equipment. The loans are repayable in semi-annual installments and they are due on various dates until 2025.

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25.
Details of two-step loans obtained from a consortium of contractors
as of June 30, 2003 and 2004 are as follows:

Currencies	Interest Rate — 2003	2004	Outstanding — 2003	2004
Rupiah	13.25%-17.51 %	9.69%-13.25 %	129,455	282,079
Japanese Yen	3.20 %	3.20 %	129,970	129,610
Long-term portion			259,425	411,689

| The consortium of contractors consists of Sumitomo Corporation, PT NEC
Nusantara Communications and PT Humpuss Elektronika (SNH Consortium). The loans
were obtained to finance the second digital telephone exchange project. The
loans are repayable in semi-annual installments and they are due on various
dates until March 15, 2015. |
| --- |
| Two-step loans which are payable in Rupiah bear either a fixed interest rate or
a floating rate based upon the average interest rate on 3-month Certificates of
Bank Indonesia during the six-months preceding the installment due date, plus
1%. Two-step loans which are payable in foreign currencies bear either a fixed
rate interest or the floating interest rate offered by the lenders, plus 0.5%. |
| As of June 30, 2004, the Company has used all facilities under the two-step
loan program and the draw-down period for the two-step loans has expired. |
| The Company should maintain financial ratios as follows: |

| a. | Projected net revenue to projected debt service ratio should exceed 1.5:1
and 1.2:1 for two-step loans originating from World Bank and Asian Development
Bank (ADB), respectively. |
| --- | --- |
| b. | Internal financing (earnings before depreciation and interest expenses)
should exceed 50% and 20% compared to capital expenditures for loans originally
from World Bank and ADB, respectively. |

As of June 30, 2004, the Company complied with the above mentioned ratios.

GUARANTEED NOTES AND BONDS

Guaranteed Notes	1,242,750	759,038
Bonds	1,000,000	983,921
	2,242,750	1,742,959

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GUARANTEED NOTES AND BONDS (continued)

| a. |
| --- |
| In April 2002, TSFL, Telkomsels wholly-owned subsidiary, issued
US$150,000,000 Guaranteed Notes (Notes) which are guaranteed by
Telkomsel. The Notes bear interest at 9.75%, payable semi-annually on
April 30 and October 30 of each year and will mature on April 30, 2007.
The trustee of the Notes is Deutsche Bank Trustees (Hongkong Limited)
and the custodian is Deutsche Bank AG, Hongkong Branch. |
| On April 23, 2002, TSFL entered into subscription agreements with UBS AG
(UBS) whereby UBS agreed to subscribe and pay for the Notes at an issue price
equal to 99.709% of the principal amount of the Notes, less any fees. TSFL has
further authorized UBS to have the Notes listed on the Singapore Exchange
Securities Trading Limited (the Singapore Exchange). |
| Based on the On-Loan Agreement dated April 30, 2002, between Telkomsel and
TSFL, the proceeds from the subscription of the Notes were lent to Telkomsel at
an interest rate of 9.765% per annum, payable on the same terms as above. |
| On September 8, 2003, the agreement was amended such that if any Notes are
cancelled, the principal amount of the outstanding loan will be reduced by the
principal amount of the Notes cancelled. |
| TSFL may, on the interest payment date falling on or about the third
anniversary of the issue date redeem the Notes, in whole or in part, at 102.50%
of the principal amount of such Notes, together with interest accrued up to the
redemption date. If only parts of the Notes are redeemed, the principal amount
of the Notes outstanding after such redemption must be at least US$100,000,000. |
| Up to June 30, 2004, Telkomsel purchased US$69,233,000 (equivalent to Rp651,829
million) of the Notes from Deutsche Bank. |
| The current rating for the Notes issued by Standard and Poors is B+ and by
Fitch is B+. |
| As of June 30, 2003 and 2004, the outstanding principal amount of the Notes and
the unamortized discount are as follows: |

Foreign currency		Rupiah		Foreign currency		Rupiah
US$		equivalent		US$		equivalent
Principal	150,000,000		1,336,200		80,767,000		760,421
Discount	(389,468	)	(93,450	)	(146,932	)	(1,383	)
Net	149,610,532		1,242,750		80,620,068		759,038

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GUARANTEED NOTES AND BONDS (continued)

| b. |
| --- |
| On July 16, 2002, the Company issued bonds amounting to Rp1,000,000
million. The bonds were issued at par value and have a term of five
years. The bonds bear interest at a fixed rate of 17% per annum,
payable quarterly beginning October 16, 2002. The bonds are traded on
the Surabaya Stock Exchange and will mature on July 15, 2007. The
trustee of the bonds is PT Bank Negara Indonesia (Persero) Tbk and the
custodian is PT Danareksa Sekuritas. |
| The current rating for the bonds issued by Pefindo is AAA and by Standard and
Poors is B+. |
| As of June 30, 2003 and 2004, the outstanding principal amount of the bonds and
the unamortized discount are as follows: |

Principal	1,000,000		1,000,000
Discount	(21,365	)	(16,079	)
Net	978,635		983,921

During the period when the bonds are outstanding, the Company should comply with all covenants or restrictions including maintaining consolidated financial ratios as follows:

1.	Debt service coverage ratio should exceed 1.5:1
2.	Debt to equity ratio should not exceed:

a.	3:1 for the period of January 1, 2002 to December 31, 2002
b.	2.5:1 for the period of January 1, 2003 to December 31, 2003
c.	2:1 for the period of January 1, 2004 to the redemption date of the bonds

Debt to EBITDA ratio should not exceed 3:1

As of June 30, 2004, the Company complied with the covenants.

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27.
The details of long-term bank loans as of June 30, 2003 and 2004 are as follows:

			2003
			Outstanding		Outstanding
			Original		Original
		Total facility	currency	Rupiah	currency	Rupiah
Lenders	Currency	(in million)	(in million)	equivalent	(in million)	equivalent
Group of lenders	US$	196.970			147.659	1,388,746
Citibank N.A.	EUR	73.365	39.798	377,127	58.692	668,164
	US$	114.883	8.354	78,905	74.862	704,510
Bank Central Asia	Rp	173,000.000		25,905		157,801
Deutsche Bank	Rp	108,817.711				25,125
Bank Finconesia	Rp	31,767.818				15,884
Bank Mandiri	Rp	82,425.262				63,233
Syndicated banks	Rp	90,000.000		47,350		21,175
	US$	4.000	2.932	21,329	1.152	10,834
Bank Niaga	Rp	565.000				390
The Eport-Import
Bank of Korea	US$	123.965			40.491	380,818
Bukopin	Rp	150,000.000				138,316
Total				550,616		3,574,996
Current maturities
of bank loans				(170,627	)	(1,005,189	)
Long-term portion				379,989		2,569,807

a.	Group of lenders
	AWI had a loan of US$270,935,729 from a group of lenders (the lenders)
before it was 100% acquired by the Company on July 31, 2003. Based on the
Conditional Sale and Purchase Agreement related to the acquisition, the
Company assumed the loan by repaying US$73,965,454 and entering into a
credit agreement with the lenders to finance the remaining outstanding
balance of the loan amounting to US$196,970,275, with JP Morgan Chase Bank,
Hong Kong office, as the facility agent. This loan bears an interest at
LIBOR plus 3.5% per annum (i.e., 4.65% as of December 31, 2003), net of 10%
withholding tax. The Company must pay an annual facility agent fee of
US$75,000. The loan is repayable in 8 semi-annual installments beginning on
December 31, 2003 with the first through the seventh installment of
US$24,655,151 and final installment of US$24,384,218.
b.	Citibank N.A.

| 1. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with Siemens
Aktiengesellschaft (AG), Telkomsel entered into the Hermes Export
Facility Agreement (Facility) with Citibank International plc (as
Arranger and Agent) covering a total facility of EUR 76,195,313 which
is divided into several tranches. |

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BANK LOANS (continued)

b. Citibank N.A. (continued)

1.	Hermes Export Facility (continued)
	The agreement was subsequently amended on October 15, 2003, amending
the Facility amount to EUR73,365,093, availability period and the
repayment dates.
	The interest rate per annum on the Facility is determined based on the
aggregate of the applicable margin, EURIBOR and mandatory cost, if any
(i.e., 2.98% as of June 30, 2004). Interest is payable semi-annually,
starting on the utilization date of the Facility.
	In addition to the interest, in 2003, Telkomsel was also charged an
insurance premium for the insurance guarantee given by Hermes in favor of
Telkomsel for each loan utilization amounting to EUR 6,089,149, 15% of which
was paid in cash. The remaining balance was settled through utilization of
the Facility.
	The total amount drawn down from the Facility up to June 30, 2004 amounted
to EUR73,365,093 (equivalent to Rp835,205 million). As of June 30, 2004, the
outstanding balance was EUR58,692 thousand.
2.	High Performance Backbone (HP Backbone) Loans

| a. |
| --- |
| The facility was obtained to finance up to 85% of the cost of supplies
and services sourced in Germany relating to the design, manufacture,
construction, installation and testing of high performance backbone
networks in Sumatra pursuant to the Partnership Agreement referred to
above. |
| The lender required a fee of 8.4% of the total facility. This fee is paid
twice during the agreement period, 15% of the fee is required to be paid
in cash and 85% is included in the loan balance. |
| As of June 30, 2004, the outstanding loan was US$16,450,318. The loan is
payable in ten semi-annual installments beginning in July 2004. |
| Amounts drawn from the facility bear interest at LIBOR plus 0.75%. |

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BANK LOANS (continued)

b. Citibank N.A. (continued)

High Performance Backbone (HP Backbone) Loans (continued)

| c. |
| --- |
| This facility was secured by the Companys property under construction
pursuant to the Partnership Agreement. |
| Amounts drawn from the facility bear fixed interest rate of 4.14%. The
loans are payable in ten semi-annual installments beginning December
2003. Total principal outstanding as of June 30, 2004 was US$14,846,024. |
| The Company has breached a covenant in the loan agreement which
stipulates that the Company will not make any loans or grant any credit
to or for the benefit of any person. As of June 9, 2004, the Company has
obtained a written waiver from Citibank International Plc with regard to
entering into the AWI loan (Note 6c and 27a). |

| 3. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with PT
Ericsson Indonesia (Note 55b), Telkomsel entered into the EKN-Backed
Facility agreement (Facility) with Citibank International plc (as
Arranger and Agent) covering a total facility amount of
US$70,483,426 which is divided into several tranches. |
| The agreement was subsequently amended on October 15, 2003, amending
availability period and the first repayment date. |
| The interest rate per annum on the Facility is determined based on the
aggregate of the applicable margin, CIRR (Commercial Interest Reference
Rate) and mandatory cost, if any (i.e., 4.27% as of December 31, 2003). The
interest charge will be paid semi annually, starting on the utilization date
of the Facility. |
| In addition to the interest, in 2003, Telkomsel was also charged an
insurance premium for the insurance guarantee given by EKN in favor of
Telkomsel for each loan utilization amounting to US$4,244,793, 15% of which
was paid in cash. The remaining balance was settled through utilization of
the Facility. |
| The total amount drawn down from the Facility up to June 30, 2004 amounted
to US$49,185,245 (Rp463,079 million). As of June 30, 2004, the outstanding
balance was US$43,565,402. |

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BANK LOANS (continued)

c.	Bank Central Asia
	On April 10, 2002, the Company entered into a Term Loan Agreement HP
Backbone Sumatra Project with Bank Central Asia, providing a total
facility of Rp173,000 million. The facility was obtained to finance the
Rupiah portion of the high performance backbone network in Sumatra
pursuant to the Partnership Agreement.
	Amounts drawn from the facility bear interest at 4.35% plus the 3-month time
deposit rate (i.e., 11.6% as of December 31, 2003). The loans are payable in
twelve quarterly installments beginning January 2004. The loan will mature in
October 2006.
	Total principal outstanding as of June 30, 2004 were Rp157,801 million,
respectively.
	The loan facility from Bank Central Asia is not collateralized.
	The Company has breached a covenant in the loan agreement which stipulates that
the Company will not make any guarantee or collateralize its assets for an
amount exceeding US$2 million or its equivalent. As of June 23, 2004 the
Company has obtained a written waiver from Bank Central Asia with regard to the
Companys time deposits collateralized for Napsindos loan (Notes 12b and 23a).
d.	Deutsche Bank AG
	On June 28, 2002, the Company entered into a contract agreement with PT
Siemens Indonesia and PT NEC Nusantara Communications for addition of
Central Electronic Wahler Switching Digital (EWSD) and Nippon Electric
Automatic Exchange (NEAX), respectively, in Division Regional V.
Subsequently, 80% of the contract amounts were factored by the vendors to
Deutsche Bank AG (Facility Agent). The loans bear fixed interest rate at
19% per annum and are repayable in two annual installments of Rp13,400
million beginning in December 2003 for loan ex-PT NEC Nusantara
Communications and Rp41,800 million beginning in January 2004 for loan ex-PT
Siemens Indonesia.
e.	Bank Finconesia
	On June 28, 2002, the Company entered into a contract agreement with PT Olex
Cables Indonesia for addition of installation of Central Lucent in Division
Regional V. Subsequently, 80% of the contract amounts were factored by the
vendor to Bank Finconesia. The loan bears fixed interest rate at 19% per
annum and is repayable in two annual installments of Rp15,884 million
beginning in December 2003.

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BANK LOANS (continued)

f.	Bank Mandiri
	On November 20, 2003, Dayamitra entered into a loan agreement with Bank
Mandiri for a maximum facility of Rp39,925 million . As of
December 31, 2003, the facility has been fully drawn down. This facility is
repayable on a quarterly basis until the fourth quarter of 2005 and
bears interest at 14.5% per annum, payable on a monthly basis and
subject to change. On December 30, 2003, Bank Mandiri agreed to
decrease the interest rate to 14% per annum commencing in January 2004.
	On December 20, 2003, Dayamitra also obtained a credit facility from Bank
Mandiri for a maximum facility of Rp40,000 million. The facility is repayable
on a quarterly basis beginning end of the third quarter of 2004 until end of
the fourth quarter of 2006 and bears interest at 14% per annum. The loan is
obtained to finance the construction of Fixed Wireless CDMA project pursuant to
the procurement agreement entered between Dayamitra and Samsung Electronic Co.
Ltd.
	The above loans are collateralized by Dayamitras telecommunications
equipment/network with CDMA technology financed by these facilities, and
Dayamitras share in the DKSOR of KSO Unit VI. As of June 30, 2004, principal
outstanding under this facility amounted to Rp61,368 million.
	On March 13, 2003, Balebat entered into a loan agreement with Bank Mandiri for
a facility of Rp2,500 million. This facility bears interest at 15% per annum
payable on a monthly basis, is secured by Balebats operating equipment and
will mature in July 2006. The principal is repayable on a monthly basis. As of
June 30, 2004, principal outstanding under this facility amounted to Rp1,865
million.
g.	Syndicated banks (Internet Protocol Backbone (IP Backbone) Loan)
	On February 25, 2002, the Company entered into a Facility Funding
Agreement with Bank DBS Indonesia (syndicated agent and lender), Bank
Bukopin (lender) and Bank Central Asia (lender), providing a total
facility of US$4,000,000 and Rp90,000 million to fund the IP Backbone
project in 7 (seven) Regional Divisions or KSO regions divided into 6
(six) batches.
	Amounts drawn in U.S. Dollars bear interest at 2% plus the highest of 1, 2 or 3
month SIBOR divided by 0.87% for the first year and 2% plus the 3 month SIBOR
divided by 0.87% thereafter. (i.e., 3.38% as of June 30, 2004) Amounts drawn in
Rupiah bear interest at 19% fixed for the first year and 5% plus the average of
BCAs and Bukopins interest rates (the highest of 1, 3, 6 or 12 month time
deposit rate) thereafter (i.e., 12.75% as of June 30, 2004).
	The loans are payable in eleven quarterly installments beginning in September
2002. The loans will mature on March 15, 2005.
	Total outstanding IP Backbone loans for Rupiah and U.S. Dollars as of June 30,
2004 are Rp21,175 million and US$1,152,000 (equivalent Rp10,835 million).

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BANK LOANS (continued)

| g. |
| --- |
| The Company pledged the property under construction as collateral for
the IP Backbone loan pursuant to Notarial Deed No.17 dated February 25,
2002 of Notary Titi Sri Amiretno Diah Wasisti Bagiono, S.H. on
Fiduciary Collateral. The pledge has a maximum amount of
US$14,587,525 and Rp401 million. |
| Average interest rates for the loans during 2003 and 2004 were as follows: |

	2003	2004
Rupiah	17.14%-19%	10.83%-11.63%
U.S. Dollar	3.5%-4.38%	3.31%-3.37%

Under the Loan Agreements for HP Backbone and IP Backbone, the Company should maintain quarterly financial ratios as follows:

1.	Debt to equity ratio should not exceed 3:1
2.	EBITDA to interest expense should exceed 5:1

	As of December 31, 2003, the Company complied with the above mentioned ratios.
h.	Bank Niaga
	On July 18 and December 3, 2003, Balebat entered into loan agreements with
Bank Niaga for facilities totalling Rp565 million. The facilities bear interest
at 15% per annum and are secured by Balebats time deposit and vehicles. The
principal and interest are payable on a monthly basis which will end in October
2005 and December 2005, respectively. As of June 30, 2004, principal
outstanding amounted to Rp390 million.
i.	The Export-Import Bank of Korea
	On August 27, 2003, the Company entered into a loan agreement with the
Export-Import Bank of Korea in the amount of US$123,965,000. The loan will
be used to finance the CDMA procurement with Samsung Consortium (Note
55a(v)) up to US$123,965,000 and will be available until April 2006.
	The loan and interest is payable in 10 semi-annual installments on June 30 and
December 30 in each year.

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BANK LOANS (continued)

| j. |
| --- |
| On June 21, 2002, the Company entered into a loan agreement with a
consortium of banks amounting to Rp400,000 million for financing the
Regional Division V Junction Project. Bukopin acting as facility
agent, charged the interest for the first year on the signing date, of
19.5% and then the average 3 month deposit rate plus 4% for the
remaining year. The disbursement period is 19 months from the signing
of the loan agreement with the repayment period 14 times quarterly
starting from April 2004. The loan facility is secured by the project
equipment, with a value of not less than Rp500,000 million. |
| Subsequently, based on an Addendum to the loan agreement dated April 4, 2003,
the loan facility was reduced to Rp150,000 million. The disbursement period
changed to 18 months from the signing of the Addendum. The repayment schedule
in 14 quarterly installments starting from May 21, 2004 and ending on June 21,
2007. |
| As of June 30, 2004, the outstanding facility was Rp138,316 million. |

| 28. |
| --- |
| This amount represents the Companys obligation under the
Promissory Notes issued to the Selling Stockholders of Dayamitra in
respect of the Companys acquisition of 90.32% of Dayamitra, to the
Selling Stockholders of Pramindo in respect of the Companys
acquisition of 100% of Pramindo, and to the Selling Stockholders of AWI
in respect of the Companys acquisition of 100% of AWI. |


Pramindo transaction (Note 6b)
France Cables et Radio S.A.	831,817
PT Astratel Nusantara	727,897
Indosat	270,362
Marubeni Corporation	166,376
International Finance Corporation, USA	62,391
NMP Singapore Pte. Ltd.	20,797
	2,079,640
AriaWest transaction (Note 6c)
PT Aria Infotek			538,650
The Asian Infrastructure Fund			128,250
MediaOne International I B.V.			359,100
Less discount on promissory notes			(102,510	)
			923,490
Total	2,079,640		923,490
Current
maturity - net of discount	(456,457	)	(205,200	)
Long-term
portion - net of discount	1,623,183		718,290

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SUPPLIERS CREDIT LOANS

Tomen Corporation	222,911
Cable & Wireless plc	37,917
Vendor credit	198,921
Total	459,749
Current maturities	(319,426	)
Long-term portion	140,323

a.	Tomen Corporation (Tomen)
	Dayamitra entered into a Design, Supply, Construction and
Installation Contract dated November 18, 1998 with Tomen, the ultimate
holding company of TMC, one of the former stockholders of Dayamitra.
Under the terms of the contract, Tomen is responsible for the
construction of the minimum new installations required under the KSO VI
Agreement in which Dayamitra is the investor.
	In connection with the above agreement, Dayamitra entered into a Suppliers
Credit Agreement (SCA) with Tomen on November 18, 1998. The total commitment
under the SCA was US$54,000,000 of which US$50,444,701 had been drawn down
before the expiration date of the available credit on September 30, 1999.
	Interest accrues on the amounts drawn down at LIBOR plus 4.5% per annum, and is
payable semiannually in arrears. Annual interest rates in 2003 ranged from from
5.53% to 5.92%, respectively.
	The SCA loan is repayable in ten semi-annual installments commencing on
December 15, 2000. The SCA contains a minimum fixed repayment schedule,
however, additional principal repayments are required on repayment dates in the
event that Dayamitra has excess cash, as defined in the SCA. To date, Dayamitra
has not been required to make additional principal repayments from excess cash.
The SCA loan is secured on a pro rata basis by the security rights provided
under the C&W plc bridging facility loan (Note 30).
b.	Cable and Wireless plc (C&W plc)
	Dayamitra entered into a Suppliers Credit Agreement (SCA) with
C&W plc on May 19, 1999.
	The SCA loan is repayable in ten semi-annual installments
commencing on December 15, 2000. The loan contains a minimum fixed
repayment schedule, however, additional principal repayments are
required on repayment dates in the event that Dayamitra has excess
cash, as defined in the SCA. Interest on this loan is at the rate of
LIBOR plus 4.5%. Annual interest rates in 2003 ranged from 5.53% to
5.92%,.
	The SCA loan is secured on a pro rata basis by the security rights provided
under the C&W plc bridging facility loan. In addition, any distributions to
stockholders in the form of dividends or repayments of share capital require
the written consent of Tomen and C&W plc.

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SUPPLIERS CREDIT LOANS (continued)

c. Vendor credit

| 1. | Agreement of materials and services procurement between
DMT and vendor for drawing cable network in KSO VI, with the
contract amounted Rp28,491 million. Payment will be made within
24 months after the signed of Certificate of Acceptance with fixed
amount. As of June 30, 2003 the second Certificates of Acceptance
has not been issued and the work is still in progress. |
| --- | --- |
| 2. | Agreement for telecommunication facility development
(PSTN Excellent) between the Company with vendor in Divre V
Surabaya. Payment will be made within 24 months after the signed
of Certificate of Acceptance with fixed amount. |
| 3. | Procurement Agreement for developing international link
of Network Access Point infrastructure in Napsindo. |

BRIDGING LOAN

Total outstanding amount	75,021
Current maturities	(51,337	)
Long-term portion	23,684

| This loan is owed by Dayamitra to C&W plc under a bridging loan facility which
was assigned from three local Indonesian banks. The loan is repayable in ten
semi-annual installments commencing on December 15, 2000. Interest is payable
on a monthly or a quarterly basis, at the option of Dayamitra, at the rate of
LIBOR plus 4% per annum. Annual interest rates in 2003 ranged from 5.06% to
5.42%,. |
| --- |
| C&W plc has agreed to the repayment of the bridging loan facility in proportion
to the amounts made available to Dayamitra under this bridging loan facility
and the C&W plc and Tomen Suppliers Credit Loan. The security provided against
the bridging loan facility consists of an assignment of KSO revenues, an
assignment of bank accounts, a security interest in Dayamitras movable assets,
an assignment of the Tomen construction contract, an assignment of proceeds
from early termination of the KSO license by the Company, and an assignment of
insurance proceeds. |
| Distributions to stockholders in the form of dividends or repayment of share
capital require the written consent of C&W plc. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

MINORITY INTEREST


Minority interest in net assets of subsidiaries:
Telkomsel	2,799,487		3,789,356
Infomedia	42,523		85,165
Dayamitra	33,858		35,570
Indonusa	12,974		1,913
Napsindo	7,080
PII	3,975		466
GSD	2		4
Total	2,899,899		3,912,474
Minority interest in net income (loss) of subsidiaries:
Telkomsel	680,436		847,810
Infomedia	10,578		41,369
Dayamitra	7,570		3,715
Indonusa	(726	)	(47	)
Napsindo	(3,532	)	(2,068	)
PII	(435	)	(1,433	)
GSD	1		1
Metra	1,749
Total	695,641		889,347

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED ) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

32. CAPITAL STOCK

	2003	Percentage	Total
Description	Number of shares	of ownership	Paid-up capital
		%
Series A Dwiwarna share
Government of the Republic of Indonesia	1
Series B shares
Government of the Republic of Indonesia	5,160,235,355	51.19	2,580,118
JPMCB US Resident (Norbax Inc.)	879,723,798	8.73	439,862
The Bank of New York	610,489,548	6.06	305,245
Board of Commissioners	8,262		4
Board of Directors	53,622		27
Public (below 5% each)	3,429,489,054	34.02	1,714,744
Total	10,079,999,640	100.00	5,040,000

	2004	Percentage	Total
Description	Number of shares	of ownership	Paid-up capital
		%
Series A Dwiwarna share
Government of the Republic of Indonesia	1
Series B shares
Government of the Republic of Indonesia	5,160,235,355	51.19	2,580,118
JPMCB US Resident (Norbax Inc.)	896,045,651	8.89	448,023
The Bank of New York	657,263,408	6.52	328,632
Board of Commissioners	9,558		5
Board of Directors	53,622		27
Public (below 5% each)	3,366,392,045	33.40	1,683,196
Total	10,079,999,640	100.00	5,040,000

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33. ADDITIONAL PAID-IN CAPITAL

| Proceeds from sale of 933,333,000 shares in excess of
par value through initial public offering in 1995 | 1,446,666 | | 1,446,666 | |
| --- | --- | --- | --- | --- |
| Capitalization into 746,666,640 series B shares in 1999 | (373,333 | ) | (373,333 | ) |
| Total | 1,073,333 | | 1,073,333 | |

DIFFERENCE IN VALUE OF RESTRUCTURING TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL

Represents the difference between the consideration paid or received and the historical amount of the net assets of the investee acquired or carrying amount of the investment sold, arising from transactions with entities under common control.

35. TELEPHONE REVENUES


Fixed lines
Local and domestic long-distance usage	3,027,524	3,508,927
Monthly subscription charges	888,963	1,319,033
Installation charges	97,157	108,442
Phone cards	15,139	10,842
Others	87,260	55,960
Total	4,116,043	5,003,204
Cellular
Air time charges	3,457,325	4,616,791
Monthly subscription charges	285,135	282,517
Connection fee charges	80,411	44,989
Features	1,561	13,378
Total	3,824,432	4,957,675
Total Telephone Revenues	7,940,475	9,960,879

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36. INTERCONNECTION REVENUES NET

Cellular	1,702,203	2,444,535
International	231,548	245,538
Other	97,871	60,605
Total	2,031,622	2,750,678

37. REVENUE UNDER JOINT OPERATION SCHEMES

Minimum Telkom Revenues	536,493	165,552
Share in Distributable KSO Revenues	318,041	96,202
Amortization of unearned initial investor payments
under Joint Operation Schemes	5,337	421
Total	859,871	262,175

Distributable KSO Revenues represent the entire KSO revenues, less MTR and operational expenses of the KSO Units. These revenues are shared between the Company and the KSO Investors based upon agreed percentages (Note 52).

38. DATA AND INTERNET REVENUES

SMS	912,727	1,595,446
Multimedia	205,103	313,612
VoIP	155,160	179,945
ISDN	37,379	55,360
Total	1,310,369	2,144,363

39. NETWORK REVENUES

Satellite transponder lease	128,788	102,156
Leased lines	87,216	172,680
Total	216,004	274,836

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40. REVENUE-SHARING ARRANGEMENT REVENUES

Revenue-Sharing Arrangement revenues	81,690	299,449
Amortization of unearned income (Note 15)	42,353	193,490
Total	124,043	492,939

41. OPERATING EXPENSES PERSONNEL

Salaries and related benefits	698,535	904,732
Vacation pay, incentives and other benefits	401,373	566,729
Early retirements	157,620	80,500
Net periodic post-retirement benefit cost (Note
48)	328,420	243,655
Net periodic pension cost (Note 46)	99,764	511,410
Employee income tax	233,832	189,302
Long service awards (Note 47)	120,375	72,176
Housing	64,674	82,861
Medical	1,587	2,371
Others	25,568	21,587
Total	2,131,748	2,675,323

42. OPERATING EXPENSES - OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICES

Operations and maintenance	760,288	1,085,606
Radio frequency usage charges	191,344	240,527
Electricity, gas and water	138,456	189,482
Cost of phone cards	79,302	155,414
Concession fees	122,501	249,083
Insurance	84,080	77,191
Leased lines	46,484	70,544
Vehicles and supporting facilities	56,848	74,960
Travelling	13,364	19,435
Others	26,418	37,768
Total	1,519,085	2,200,010

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43. OPERATING EXPENSES - GENERAL AND ADMINISTRATIVE

Professional fees	32,401	64,859
Collection expenses	132,452	155,568
Amortization of intangible assets (Note 16)	299,005	374,396
Training, education and recruitment	51,962	86,534
Travel	62,272	91,746
Security and screening	47,273	50,619
General and social contribution	16,933	40,409
Printing and stationery	22,377	32,144
Meetings	18,223	28,065
Provision for doubtful accounts and inventory
obsolescence	127,845	171,455
Research and development	4,034	6,172
Others	213	22,075
Total	814,990	1,124,042

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX


a. Prepaid taxes
The Company
Refundable
corporate income tax - overpayment		38,370
		38,370
Subsidiaries
Corporate income tax		746
Value added tax		279
		1,025
		39,395
b. Taxes payable
The Company
Income tax
Article 21	22,608	52,638
Article 22	4,439	3,575
Article 23	35,868	10,015
Article 25	244,536	87,205
Article 26	244,535	3,968
Article 29	311,583	157,796
Value added tax	11,226	181,991
	874,795	497,188
Subsidiaries
Income tax
Article 21	10,270	13,098
Article 22	136	233
Article 23	50,754	38,626
Article 25	131,962	140
Article 26	12,469	319
Article 29	75,448	380,478
Value added tax	23,077	81,269
	304,116	514,163
	1,178,911	1,011,351

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INCOME TAX (continued)

c. The components of income tax expense (benefit) are as follows:


Current
The Company	932,238		718,742
Subsidiaries	819,617		1,121,166
	1,751,855		1,839,908
Deferred
The Company	(161,297	)	9,692
Subsidiaries	168,279		(19,551	)
	6,982		(9,859	)
	1,758,836		1,830,049

d. Corporate income tax is computed for each individual company as a separate legal entity (consolidated financial statements are not applicable for computing corporate income tax).

The reconciliation of consolidated income before tax to income before tax attributable to the Company and the consolidated income tax expense is as follows:

Consolidated income before tax	5,992,559		5,594,553
Add back consolidation eliminations	1,530,439		1,816,550
Consolidated income before tax and eliminations	7,522,998		7,411,103
Deduct income before tax of the subsidiaries	(2,721,247	)	(3,923,356	)
Income before tax attributable to the Company	4,801,751		3,487,747
Tax calculated at progressive rates	1,441,408		1,046,307
Income not subject to tax	(705,025	)	(525,304	)
Non-deductible expenses	109,629		256,068
Deferred tax assets that cannot be utilized	(49,250	)	(48,639	)
Income tax expense of the Company	796,762		728,432
Income tax expense of the subsidiaries	962,075		1,101,617
Total consolidated income tax expense	1,758,836		1,830,049

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44. INCOME TAX (continued)

The reconciliation between income before tax and the estimated taxable income for the six months period ended June 30, 2003 and 2004 is as follows:

Income before tax attributable to the Company	4,581,030		3,487,747
Temporary differences:
Depreciation of property, plant and equipment	139,899		(235,187	)
Gain on sale of property, plant and equipment			(177,292	)
Allowance/(write back) for doubtful accounts	76,998		89,203
Accounts receivable written-off			(21,941	)
Allowance for inventory obsolescence	5,370		75,512
Inventory written-off	212		(676	)
Payment of early retirement benefits	(376,110	)	(40,146	)
Net periodic pension cost	(196,333	)	125,310
Long service awards			41,395
Amortization of deferred stock issuance costs	(1,682	)
Amortization of landrights	(976	)	(1,973	)
Accrued interest income on AWI loan			45,835
Gain on sale of long-term investments	(7,164	)
Temporary differences of KSO units	20,992		7,110
Depreciation of property, plant and equipment
under revenue sharing arrangements			229,314
Amortization of unearned income under revenue-
sharing arrangements			(191,630	)
Equity in net loss of associated companies	790,381
	451,587		(55,166	)

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44. INCOME TAX (continued)


Permanent differences:
Net periodic post-retirement benefit cost	101,379		241,113
Amortization of goodwill and intangible assets	206,051		374,396
Amortization of discount on promissory notes			45,255
Equity in net loss/(income) of associates and
subsidiaries	(2,194,282	)	(1,819,374	)
Gain on sale of long-term investment in Telkomsel
Interest income	(146,807	)	(75,293	)
Amortization of unearned income under revenue-
sharing arrangements	(42,183	)
Income from land/building rental	(8,995	)	(12,547	)
Others	159,740		160,007
Total	(1,925,097	)	(1,086,443	)
Total taxable income of the Company	3,107,520		2,346,137
Current income tax expense of the Company	932,238		718,743
Current income tax expense of the subsidiaries	819,617		1,121,166
Total	1,751,855		1,839,908

In 2003, Telkomsel received tax assessment letters (SKPKB) for all taxes covering the fiscal years 2000 and 2001. Telkomsel filed an objection on the SKPKB for fiscal year 2001 which was partly approved by Director General of Taxes. As a result, Telkomsel charged tax underpayments to expense in 2003 amounting to Rp32,283 million.

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44. INCOME TAX (continued)

e. Deferred tax assets and liabilities

The details of the Companys and subsidiaries deferred tax assets and liabilities are as follows:


		credited
December 31,		to statements		June 30
2002		of income		2003
The Company
Deferred tax assets:
Allowance for doubtful
accounts	101,389		167,081		268,470
Allowance for inventory
obsolescence	10,507		(138	)	10,369
Provision for early retirement
benefits	201,294		(99,662	)	101,632
Decline in value of
investments
Deferred stock issuance costs			3,532		3,532
Landrights	161		(296	)	(135	)
Long-term investments	52,605		(1,873	)	50,732
Provision for long service
awards	146,769		(2,342	)	144,427
Provision for impairment of
property, plant and
equipment	1,920				1,920
Total deferred tax assets	514,645		66,302		580,947
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(1,513,007	)	113,744		(1,399,263	)
Revenue-sharing arrangements	(18,119	)	(49,178	)	(67,297	)
Net periodic pension cost	(7,988	)	30,429		22,441
Total deferred tax liabilities	(1,539,114	)	94,995		(1,444,119	)
Deferred tax liabilities of the
Company, net	(1,024,469	)	161,297		(863,172	)
Deferred tax liabilities of the
subsidiaries, net	(2,058,697	)	(168,279	)	(2,226,976	)
Total deferred tax liabilities, net	(3,083,166	)	(6,982	)	(3,090,148	)

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INCOME TAX (continued)

e. Deferred tax assets and liabilities (continued)


		credited
December 31,		to statements		June 30,
2003		of income		2004
The Company
Deferred tax assets:
Allowance for doubtful
accounts	118,845		26,357		145,202
Allowance for inventory
obsolescence	11,527		1,004		12,531
Provision for early retirement
benefits	39,843		(12,044	)	27,799
Provision for employee bonuses	84,385		(21,250	)	63,135
Provision for long service
awards	142,084		12,419		154,503
Provision
for impairment of property, plant and
equipment
Total deferred tax assets	396,684		6,486		403,170
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(1,387,440	)	(71,253	)	(1,458,693	)
Accrued interest	(13,750	)	13,750
Landrights	(546	)	(592	)	(1,138	)
Long-term investments	(14,138	)			(14,138	)
Revenue sharing arrangements	(58,453	)	4,324		(54,129	)
Net periodic pension cost	(88,914	)	37,593		(51,321	)
Total deferred tax liabilities	(1,563,241	)	(16,178	)	(1,579,419	)
Deferred tax liabilities of the
Company, net	(1,166,557	)	(9,692	)	(1,176,249	)
Deferred tax liabilities of the
subsidiaries, net	(2,380,214	)	19,551		(2,360,663	)
Total deferred tax liabilities, net	(3,546,771	)	9,859		(3,536,911	)

As of June 30, 2004, AWI had tax loss carryforwards of approximately Rp952,854 million, which will expire from 2005 through 2006.

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INCOME TAX (continued)

f. Administration

Under taxation laws of Indonesia, the Company submits tax returns on the basis of self-assessment. The tax authorities may assess or amend taxes within ten years from the date the tax became payable.

The Company and its subsidiaries are being audited by the tax authorities for various fiscal years. These tax audits are not finalized at the date of these financial statements; however, management believes that the outcome of these tax audits will not be significant.

BASIC EARNINGS PER SHARE

Net income per share is computed by dividing net income by the weighted average number of shares outstanding during the year, totaling 10,079,999,640 shares in 2001, 2002 and 2003.

The Company does not have potentially dilutive ordinary shares.

CASH DIVIDENDS AND GENERAL RESERVE

Pursuant to the Annual General Meeting of Shareholders as stated in notarial deed No. 17/V/2003 dated May 9, 2003 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved the distribution of cash dividends for 2002 amounting to Rp3,338,109 million or Rp331.16 per share, and appropriation of Rp813,664 million for general reserve.

In connection with the restatement of the consolidated financial statements for the two years ended December 31, 2002, the stockholders ratified the previous declaration of dividends in the Extraordinary General Meeting of Stockholders as stated in notarial deed No. 4 dated March 10, 2004 of Notary A. Partomuan Pohan, S.H., LLM. as follows:

| | Dividends for 2002 amounting to Rp3,338,109 million or Rp383.63
per share, social contribution fund (Dana Bina Lingkungan) of
Rp20,863 million and appropriated Rp813,664 million for general
reserves. |
| --- | --- |
| | Dividends for 2001 amounting to Rp2,125,055 million or Rp210.81
per share, and appropriated Rp425,011 million for general reserves. |
| | Dividends for 2000 amounting to Rp888,654 million or Rp88.16
per share, and appropriated Rp126.951 million for general reserves. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PENSION PLAN

a. The Company

The Company provides a defined benefit pension plan for employees hired with permanent status prior to July 1, 2002. The pension benefits are paid based on the participating employees latest basic salary at retirement and years of service. The plan is managed by Dana Pensiun Telkom. The participating employees contribute 18% (before March 2003: 8.4%) of their basic salaries to the plan. The Companys contributions to the pension fund for the six months period ended June 30, 2003 and 2004 amounted to Rp297,352 million and Rp460,576 million, respectively. In addition, the pension contribution of KSO Units during 2003 amounted to the Rp20,709 million.

In 2002, the Company added double pension benefits for participating employees above 56 years of age, beneficiaries of deceased participating employees or employees with physical disabilities. The increase applies to participating employees who retired on or after July 1, 2002. The Company also increased pension benefits for employees who retired prior to August 1, 2000 by 50%, effective January 1, 2003.

The following table presents the change in benefit obligation, the change in plan assets, funded status of the plan and the net amount recognized in the Companys balance sheets as of June 30, 2003 and 2004:


Change in benefit obligation
Benefit obligation at beginning of year	4,248,110		6,852,923
Service cost	59,545		68,632
Interest cost	268,899		370,247
Expected employee contributions	20,265		20,265
Expected benefit payments	(111,211	)	(121,156	)
Actuarial (gain) loss	1,064,909		(358,564	)
Benefit obligation at end of year	5,550,517		6,832,347
Change in plan assets
Fair value of plan assets at beginning of year	3,099,648		3,671,309
Expected employer contributions	234,596		131,310
Expected return on plan assets	210,854		218,336
Expected benefit payments	(111,211	)	(121,156	)
Actuarial gain (loss)	(48,408	)	(48,408	)
Fair value of plan assets at end of year	3,385,480		3,851,391
Funded status	(2,165,037	)	(2,980,956	)
Unamortized net amount resulting from changes in plan experience
and actuarial assumptions	421,785		1,455,968
Unamortized prior service cost	1,733,806		1,577,022
Unrecognized net obligation at the date of initial application of
PSAK No. 24	163,208		134,574
Prepaid pension cost	153,762		186,608

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PENSION PLAN (continued)

a. The Company (continued)

Plan assets consist mainly of Rupiah time deposits.

The unrecognized net obligation at the date of initial application of PSAK No. 24 is amortized over the expected average remaining working lives of active employees, i.e., 17.2 years, starting from January 1, 1992.

The actuarial valuations for the pension plan performed based on measurement date of December 31, 2003 were prepared on May 21, 2004, by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The principal actuarial assumptions used by the independent actuary are as follows:


%
Discount rate	11
Expected long-term return on plan assets	11
Salary growth rate	8

The components of net periodic pension cost recognized are as follows:

Service cost	51,559		79,636
Interest cost	268,899		370,247
Expected return on plan assets	(210,853	)	(218,336	)
Net amortization and deferral	(88,233	)	57,551
Increase in amortization of prior service cost	78,392		222,312
Net periodic pension cost (Note 41)	99,764		511,410

In addition, the pension cost charged to the KSO Units amounted to Rp25,207 million and Rp29,896 million in 2003 and 2004, respectively.

b. Telkomsel

Telkomsel provides a defined benefit pension plan to its employees under which pension benefits to be paid are based on the employees latest basic salary and number of years of service. PT Asuransi Jiwasraya, a state-owned life insurance company, manages the plan. The employees contribute 5% of their final monthly basic salaries to the plan and Telkomsel contributes any remaining amount required to fund the plan.

Telkomsels contributions to Jiwasraya amounted to Rp5,163 million and Rp3,081 million for the six months period ended 2003 and 2004, respectively.

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PENSION PLAN (continued)

b. Telkomsel (continued)

The components of the net periodic pension cost are as follows:

Service cost	2,375		2,078
Net amortization and deferral	(1,248	)	2,168
Net periodic pension cost	1,127		4,246

The net periodic pension cost for the pension plan is calculated based on the actuarial calculation prepared by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The principal actuarial assumptions used by the independent actuary performed based on measurement date are as follows:

Discount rate	11 %
Expected long-term return on plan assets	7.5 %
Salary growth rate	9 %

The funded status of the plan as of June 30, 2003 and 2004 is as follows:

Projected benefit obligation	20,927		39,748
Plan assets at fair value	27,919		8,916
Excess (shortages) of plan assets over projected
benefit obligation	6,992		(30,832	)
Unrecognized past service cost	3,135		1,443
Unrecognized experience adjustment	(2,813	)	23,718
Prepaid (unfunded) pension cost	7,314		(5,671	)

The unrecognized net obligation at the date of initial application of PSAK No. 24 is amortized over the expected average remaining service period of active employees, i.e., 18.87 years, as of June 1, 1999.

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PENSION PLAN (continued)

c. Other Subsidiaries

Certain of the Companys subsidiaries provide defined benefit pension plans to their employees. The employees contribute 3-5% of their basic salaries to the plan and the subsidiary contributes any remaining amount required to fund the plan. Pension benefit costs are calculated based on the actuarial valuations from an independent actuary using the Projected Unit Credit method.

As of June 30, 2004, there are no significant differences between the fair values of the plan assets of the relevant pension fund and the projected benefit obligations.

In other subsidiaries that no pension plans are provided, the obligation for pension benefits is calculated based on Law No.13 of 2003 concerning labor regulation.

LONG SERVICE AWARDS

The Company provides certain cash awards to employees who meet certain length of service requirement. The benefits, which are either paid during active employment, upon resignation, retirement or termination, are as follows:

Awards paid during active employment:

i. Karya Bhakti long term award

ii. Long leave allowance

Awards payable upon resignation, retirement or termination:

i. Purnabhakti award and Pengabdian award

ii. Last housing allowance

iii. Last transportation allowance

The actuarial valuations for the long service awards performed based on measurement date of December 31, 2003 was prepared on May 21, 2004 by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide, using the Projected Unit Credit Method. The principal acturial assumptions used by the independent actuary are as follows:

Discount rate	11 %
Salary growth rate	8 %

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LONG SERVICE AWARDS (continued)

The movement of the long service awards during the six months period ended, 2003 and 2004 is as follows (including KSO units):

Liability at beginning of year	489,231		473,614
Net periodic benefit cost (Note 41)	120,375		72,176
Benefits paid	(111,372	)	(36,358	)
Liability at end of year	498,234		509,432

POST-RETIREMENT BENEFITS

The Company provides a post-retirement health care plan for all of its employees hired before November 1, 1995 who have worked for the Company for 20 years or more when they retire, and to their eligible dependents. The requirement of working for over 20 or more years does not apply to employees who retired prior to June 3, 1995. However, the employees hired by the Company starting from November 1, 1995 will no longer be entitled to this plan. The plan is managed by Yayasan Kesehatan Pegawai Telkom (YKPT).

The components of net periodic post-retirement benefit cost are as follows:

Service cost	48,002		30,661
Interest cost	246,798		205,555
Expected return on plan assets	(28,002	)	(30,542	)
Amortization of unrecognized transition obligation	12,163		12,163
Amortization of prior service cost	(184	)	(184	)
Amortization of gain/losses	49,644		26,003
Net periodic post-retirement benefit cost (Note 41)	328,420		243,655

In addition, the cost of post-retirement benefits charged to the KSO Units amounted to Rp9,566 million and Rp7,795 million in 2003 and 2004, respectively.

The actuarial valuations for the post-retirement benefit plan performed based on measurement date of December 31 for each of the years were prepared on January 15, 2004, while the valuation for the post-retirement benefits as of December 31, 2003 was prepared on May 21, 2004 by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide.

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POST-RETIREMENT BENEFITS (continued)

The principal actuarial assumptions used by the independent actuary as of December 31, 2003 are as follows:

Discount rate	11 %
Expected return on plan assets	11 %
Health care cost trend rate assumed for next year	12 %
The ultimate trend rate	8 %
Year that the rate reaches the ultimate trend rate	2006


Change in benefit obligation
Benefit obligation at beginning of year	3,549,886		3,748,771
Service cost	40,300		25,180
Interest cost	246,798		205,555
Benefits paid	(46,710	)	(50,027	)
Actuarial (gain) loss	93,449		(418,453	)
Benefit obligation at end of year	3,883,723		3,511,026
Change in plan assets
Fair value of plan assets at beginning of year	343,896		466,896
Employer contributions	90,290		100,000
Actual return on plan assets	28,002		30,542
Benefits paid	(49,306	)	(50,027	)
Actuarial gain (loss)	(7,486	)	(7,486	)
Fair value of plan assets at end of year	405,396		539,925
Funded status	(3,478,327	)	(2,971,101	)
Unrecognized net transition obligation	279,737		255,412
Unrecognized prior service gain	(2,117	)	(1,749	)
Unrecognized net losses	1,264,839		640,930
Accrued post-retirement benefit cost	(1,935,869	)	(2,076,509	)

The transition obligation at the date of initial application of Rp524,250 million is amortized over 20 years, beginning on January 1, 1995.

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SIGNIFICANT RELATED PARTY INFORMATION

In the normal course of business, the Company and its subsidiaries entered into transactions with related parties. It is the Companys policy that, the pricing of these transactions be the same as those of arms-length transactions.

The following are significant agreements/transactions with related parties:

a. Government of the Republic of Indonesia

i. The Company obtained two-step loans from the Government of the Republic of Indonesia, the Companys majority stockholder.

Interest expense for two-step loans amounted to Rp347,382 million and Rp259,880 million in 2003 and 2004 respectively. Interest expense for two-step loan reflected 56.07% and 37.35% of total interest expenses in 2003 and 2004, respectively.

ii. The Company and its subsidiary pay concession fees for telecommunications services provided and radio frequency usage charges to the Ministry of Communications (formerly, Ministry of Tourism, Post and Telecommunications) of the Republic of Indonesia.

Concession fees amounted to Rp122,501 million and Rp249,083 million in 2003 and 2004, respectively. Concession fees reflected 1,8% and 2.6% of total operating expenses in 2003 and 2004, respectively. Radio frequency usage charges amounted to Rp191,344 million and Rp240,527 million in 2003 and 2004, respectively. Radio frequency usage charges reflected 2.8% and 2.56% of total operating expenses in 2003 and 2004, respectively.

b. Commissioners and Directors Remuneration

| i. | The Company and its subsidiaries provide honorarium and
facilities to support the operational duties of the Board of
Commissioners. The total of such benefits amounted to Rp6,880
million and Rp8,008 million in 2003 and 2004, respectively, which
reflected 0.1% and 0.1% of total operating expenses in 2003 and
2004, respectively. |
| --- | --- |
| ii. | The Company and its subsidiaries provide salaries and
facilities to support the operational duties of the Board of
Directors. The total of such benefits amounted to Rp22,104 million,
and Rp24,274 million in 2003 and 2004, respectively, which
reflected 0.32% and 0.26% of total operating expenses in 2003 and
2004, respectively. |

c. Indosat, including Satelindo

The Company has an agreement with Indosat for the provision of international telecommunications services to the public.

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RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

The principal matters covered by the agreement are as follows:

| i. | The Company provides a local network for customers to make
or receive international calls. Indosat provides the international
network for the customers, except for certain border towns, as
determined by the Director General of Post and Telecommunications
of the Republic of Indonesia. The international telecommunications
services include telephone, telex, telegram, package switched data
network, television, teleprinter, Alternate Voice/Data
Telecommunications (AVD), hotline and teleconferencing. |
| --- | --- |
| ii. | The Company and Indosat are responsible for their
respective telecommunications facilities. |
| iii. | Customer billing and collection, except for leased lines
and public phones located at the international gateways, are
handled by the Company. |
| iv. | The Company receives compensation for the services provided
in the first item above, based on the interconnection tariff
determined by the Minister of Communications of the Republic of
Indonesia. |

The Company has also entered into an interconnection agreement between the Companys fixed-line network and Indosats cellular network in connection with the implementation of Indosat Multimedia Mobile services and the settlement of the related interconnection rights and obligations.

Pursuant to the Ministry of Communications Decree regarding the transfer of the license for Indosats mobile cellular network operation from Indosat to PT Indosat Multimedia Mobile (IM3), the Company agreed to transfer all interconnection rights and obligations to IM3 based on Interconnection Cooperation Agreement, as regulated in the Amendment of Agreement in the side letter No. 656 dated March 18, 2002.

The Companys compensation relating to leased lines/channel services, such as International Broadcasting System (IBS), AVD and bill printing is calculated at 15% of Indosats revenues from such services.

Indosat also leases circuits from the Company to link Jakarta, Medan and Surabaya.

The Company has been handling customer billings and collections for Indosat. Indosat is gradually taking over the activities and performing its own direct billing and collection. The Company receives compensation from Indosat computed at 1% of the collections made by the Company beginning January 1, 1995, plus the billing process expenses which are fixed at a certain amount per record.

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RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

Telkomsel also entered into an agreement with Indosat for the provision of international telecommunications services to GSM mobile cellular customers. The principal matters covered by the agreement are as follows:

| i. | Telkomsels GSM mobile cellular telecommunications network
is connected to Indosats international gateway exchanges to make
outgoing or receive incoming international calls through Indosats
international gateway exchanges. |
| --- | --- |
| ii. | Telkomsels GSM mobile cellular telecommunications network
is connected to Indosats mobile cellular telecommunications
network, enabling Telkomsels cellular subscribers to make outgoing
calls to or receive incoming calls from Indosats cellular
subscribers. |
| iii. | Telkomsel receives as compensation for the interconnection,
a specific percentage of Indosats revenues from the related
services which are made through Indosats international gateway
exchanges and mobile cellular telecommunications network. |
| iv. | Billings for calls made by Telkomsels customers are
handled by Telkomsel. Telkomsel is obliged to pay Indosats share
of revenue regardless whether billings to customers have been
collected. |
| v. | The provision and installation of the necessary
interconnection equipment is Telkomsels responsibility.
Interconnection equipment installed by one of the parties in
another partys locations shall remain the property of the party
installing such equipment. Expenses incurred in connection with
the provision of equipment, installation and maintenance are borne
by Telkomsel. |

Telkomsel also has an agreement with Indosat on the usage of Indosats telecommunications facilities. The agreement, which was made in 1997 and is valid for eleven years, is subject to change based on an annual review and mutual agreement by both parties. The charges for the usage of the facilities amounted to Rp5,883 million and Rp9,244 million in 2003 and 2004, respectively, reflecting 0.1% and 0.1% of total operating expenses in 2003 and 2004, respectively. Other agreements between Telkomsel and Indosat are as follows:

i. Agreement on Construction and Maintenance for Jakarta-Surabaya Cable System (J S Cable System).

On October 10, 1996, Telkomsel, Lintasarta, Satelindo and Indosat (the Parties) entered into an agreement on the construction and maintenance of the J-S Cable System. The Parties have formed a management committee which consists of a chairman and one representative of each of the Parties to direct the construction and operation of the cable system. The construction of the cable system was completed in 1998. In accordance with the agreement, Telkomsel shared 19.325% of the total construction cost. Telkomsel shares in the operating and maintenance costs based on an agreed formula.

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RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

The cost of operation and maintenance shared amounted to Rp430 million and Rp464 million for the years 2003 and 2004, respectively.

ii. Indefeasible Right of Use Agreement

On September 21, 2000, Telkomsel entered into agreement with Indosat on the use of SEA ME WE 3 and tail link in Jakarta and Medan. In accordance with the agreement, Telkomsel was granted an indefeasible right to use certain capacity of the Link starting from September 21, 2000 until September 20, 2015 in return for an upfront payment of US$2,727,273. In addition to the upfront payment, Telkomsel is also charged annual operation and maintenance costs amounting to US$136,364.

As of April 8, 2004, in connection with merger of Indosat, amendment to the agreements with Indosat, including extension of period, is still in process.

The Company and its subsidiary earned net interconnection revenues from Indosat (including IM3 and Satelindo in 2003) of Rp757,962 million and Rp260,394 million in 2003 and 2004, respectively, reflecting 6.0% and 1.6% of total operating revenues in 2003 and 2004, respectively.

The Company and its subsidiary earned net interconnection revenue from IM3 in 2003 and 2004 amounted to Rp9,454 million and Rp(2,856) million, respectively.

The Company leases international circuits from Indosat, subsequent to the merger of Satelindo to Indosat in 2003. Payments made in relation to the lease expense amounted to Rp16,447 million and Rp6,014 in 2003 and 2004, which reflected 0.1% and 0.1% of total operating expenses for 2003 and 2004 respectively.

The Company has an agreement with Satelindo, an Indosat subsidiary, whereby both parties agreed, among other matters, on the following:

| i. | Interconnection of the Companys fixed-line network
(PSTN) with Satelindos international gateway exchange, enabling
the Companys customers to make outgoing or receive incoming
international calls through Satelindos international gateway
exchange. |
| --- | --- |
| ii. | Billings for the international telecommunications services
used by domestic customers through Satelindos international
gateway exchange will be handled by the Company. |

The Company also has an agreement with Satelindo for the interconnection of Satelindos GSM mobile cellular telecommunications network with the Companys PSTN, enabling the Companys customers to make outgoing calls to or receive incoming calls from Satelindos customers.

Interconnection revenues earned from Satelindo were Rp29,113 million and Rp28,395 million in 2003 and 2004, respectively, which reflected 0.2% and 0.2% of total operating revenues for 2003 and 2004, respectively.

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RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

In 1994, the Company transferred to Satelindo the right to use a parcel of Company-owned land located in Jakarta which had been previously leased to Telekomindo, an associated company. Based on the transfer agreement, Satelindo is given the right to use the land for 30 years and can apply for the right to build properties thereon. The ownership of the land is retained by the Company. Satelindo agreed to pay Rp43,023 million to the Company for the thirty-year right. Satelindo paid Rp17,210 million in 1994 and the remaining Rp25,813 million was not paid because the Utilization Right (Hak Pengelolaan Lahan) on the land could not be delivered as provided in the transfer agreement. In 2000, the Company and Satelindo agreed on an alternative solution resulting in which the payment is treated as a lease expense up to 2006. In 2001, Satelindo paid the remaining amount of Rp59,860 million as lease expense up to 2024. As of June 30, 2004, the prepaid portion is shown in the consolidated balance sheets as Advances from customers and suppliers.

d. The Company provides telecommunication services to Government agencies.

51. SEGMENT INFORMATION

The Company and its subsidiaries have two main business segments: fixed line and cellular. The fixed line segment provides local and domestic long distance telephone services and other telecommunications services (including among others, leased lines, telex, transponder, satellite and Very Small Aperture Terminal-VSAT) as well as ancillary services. The cellular segment provides basic telecommunication services, particularly mobile cellular telecommunication services. Operating segments that do not individually represent more than 10% of the Companys revenues are presented as Other comprising the telephone directories and building management businesses.

Segment revenues and expenses include transactions between business segments and are accounted for at amounts prices that represent market prices.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SEGMENT INFORMATION (continued)


						Total before				Total
Fixed line		Cellular		Other		elimination		Elimination		consolidated
Segment results
Operating revenues
External operating revenues	7,665,466		4,804,430		116,210		12,586,106				12,586,106
Intersegment operating revenues	(235,461	)	(396,988	)	(8,753	)	(641,202	)	641,202
Total operating revenues	7,430,005		4,407,442		107,457		11,944,904		641,202		12,586,106
Operating income	2,874,675		2,824,860		1,970		5,701,505		60,201		5,761,706
Interest expense	(548,056	)	(71,496	)			(619,552	)			(619,552	)
Interest income	152,857		32,397		4,965		190,219				190,219
Gain (loss) on foreign exchange - net	358,914		24,035		784		383,733				383,733
Other income (charges) - net	310,165		(9,869	)	31,997		332,293		(60,201	)	272,092
Tax expense	(892,270	)	(855,824	)	(10,742	)	(1,758,836	)			(1,758,836	)
Equity in net income of associated
companies	1,403,902						1,403,902		(1,399,542	)	4,360
Income before minority interest	3,660,187		1,944,103		28,974		5,633,264		(1,399,542	)	4,233,722
Unallocated minority interest											(695,641	)
Net income	3,660,187		1,944,103		28,974		5,633,264		(1,399,542	)	3,538,081
Other information
Segment assets	32,804,334		13,638,300		371,216		46,813,850		(6,332,845	)	40,481,005
Investments in associates	7,163,986						7,163,986				7,163,986
Total consolidated assets	39,968,320		13,638,300		371,216		53,977,836		(6,332,845	)	47,644,991
Total consolidated liabilities	(22,951,538	)	(5,619,980	)	(257,611	)	(28,829,129	)	322,306		(28,506,823	)
Minority interest											(2,595,799	)
Depreciation and amortization	(1,325,884	)	(712,192	)	(4,439	)	(2,042,515	)			(2,042,515	)
Amortization of intangible assets	(162,262	)					(162,262	)			(162,262	)
Other non-cash expenses	(86,746	)	(44,009	)	(3,890	)	(134,645	)			(134,645	)

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SEGMENT INFORMATION (continued)


						Total before				Total
Fixed line		Cellular		Other		elimination		Elimination		consolidated
Segment results
Operating revenues
External operating revenues	9,221,682		6,638,488		248,435		16,108,605				16,108,605
Intersegment operating revenues	(94,368	)	(194,049	)			(288,417	)	288,417
Total operating revenues	9,127,314		6,444,439		248,435		15,820,188		288,417		16,108,605
Operating income	3,034,719		3,576,126		82,211		6,693,056		35,705		6,728,761
Interest expense	(577,709	)	(118,106	)			(695,815	)			(695,815	)
Interest income	143,783		38,732		1,901		184,416				184,416
Gain (loss) on foreign exchange - net	(840,367	)	(29,412	)	(35	)	(869,814	)			(869,814	)
Other income (charges) - net	205,294		27,624		46,968		279,886		(35,705	)	244,181
Tax expense	(718,612	)	(1,072,650	)	(38,788	)	(1,830,050	)			(1,830,050	)
Equity in net income of associated
companies	1,819,374						1,819,374		(1,816,550	)	2,824
Income before minority interest	3,066,482		2,422,314		92,257		5,581,053		(1,816,550	)	3,764,503
Unallocated minority interest											(889,347	)
Net income	3,066,482		2,422,314		92,257		5,581,053		(1,816,550	)	2,875,156
Other information
Segment assets	42,706,622		18,063,586		349,732		61,119,940		(13,038,625	)	48,081,315
Investments in associates	8,542,630						8,542,630				8,542,630
Total consolidated assets	51,249,252		18,063,586		349,732		69,662,570		(13,038,625	)	56,623,945
Total consolidated liabilities	(29,705,863	)	(7,236,853	)	(143,974	)	(37,086,690	)	4,161,876		(32,924,814	)
Minority interest											(3,708,155	)
Capital expenditures	(1,130,487	)	(2,173,739	)	(42,982	)	(3,347,208	)			(3,347,208	)
Depreciation and amortization	(1,727,475	)	(1,248,872	)	(7,267	)	(2,983,614	)	7,295		(2,976,319	)
Amortization of intangible assets	(374,396	)					(374,396	)			(374,396	)
Other non-cash expenses	(116,908	)	(50,032	)	(4,515	)	(171,455	)			(171,455	)

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| 52. |
| --- |
| In 1995, the Company and five investors (PT Pramindo Ikat Nusantara, PT
AriaWest International, PT Mitra Global Telekomunikasi Indonesia, PT
Dayamitra Telekomunikasi and PT Bukaka Singtel International) entered into
agreements for Joint Operation Schemes (KSO) and KSO construction
agreements for the provision of telecommunication facilities and services
for the Sixth Five-Year Development Plan (Repelita VI) of the Republic of
Indonesia. The five investors undertook the development and operation of the
basic fixed telecommunications facilities and services in five of the
Companys seven regional divisions. |
| Under the Joint Operation Scheme, the KSO Unit is required to make payments
to the Company consisting of the following: |

n	Minimum Telkom Revenue (MTR)
	Represents the amount guaranteed by the KSO investor to be paid to the
Company in accordance with the KSO agreement.
n	Distributable KSO Revenues (DKSOR)
	DKSOR are the entire KSO revenues, less the MTR and the operational
expenses of the KSO Units, as provided in the KSO agreements. These
revenues are shared between the Company and the KSO Investors based on
agreed upon percentages.
	The DKSOR from fixed wireless revenues (Telkom Flexi Revenues) are
shared between the Company and KSO Investor based on a ratio of 95% and
5%, respectively.
	The DKSOR from non-Telkom Flexi Revenues are shared between the Company
and KSO Investor based on a ratio of 30% and 70%, respectively, except
for KSO VII. For KSO VII, the DKSOR from non-Telkom Flexi Revenues are
shared between the Company and KSO Investor at a ratio of 35% and 65%,
respectively. Effective on 31 July 2003, the ratio for distribution of
DKSOR from non-Telkom Flexi Revenue in KSO III was changed to 5% and 95%
for the Company and KSO Investor, respectively, from the date thereof
until 31 December 2005, and to 30% and 70%, respectively, thereafter.

At the end of the KSO period, all rights, title and interests of the KSO Investor in existing installations and all work in progress, inventories, equipment, materials, plans and data relating to any approved additional new installation projects then uncompleted or in respect of which the tests have not been successfully completed, shall be sold and transferred to the Company without requiring any further action by any party, upon payment by the Company to the KSO Investor of one hundred Rupiah, plus:

| i. | the net present value, if any, of the KSO Investors projected
share in DKSOR from the additional new installations forming part of
the KSO system on the termination date over the balance of the
applicable payback periods, and |
| --- | --- |
| ii. | an amount to be agreed upon between the Company and the KSO
Investor as a fair compensation in respect of any uncompleted or
untested additional new installations transferred. |

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| 52. |
| --- |
| The depreciation of the Rupiah against the U.S. Dollars, which started in
the second half of 1997, has impacted the financial condition of the KSO
Investors. In response to economic conditions, on June 5, 1998, all KSO
Investors and the Company signed a Memorandum of Understanding (MoU) to
amend certain provisions of the KSO agreements. Among the amendments are as
follows: |

| i. | The percentage of sharing of the distributable KSO revenues for
1998 and 1999 was 10% and 90% for the Company and the KSO Investors,
respectively. |
| --- | --- |
| ii. | The minimum number of access line units to be installed by the KSO
Investors up to March 31, 1999 was 1,268,000 lines. |
| iii. | The incremental rate of the MTR would not exceed 1% in 1998 and
1.5% in 1999 for the KSO agreements with the Investors that have MTR
incremental factors. |
| iv. | Operating Capital Expenditures in each of the KSO Units will be
shared between the Company and the respective KSO Investors in
proportion to the previous years share in the annual net income of the
KSO Units, starting from 1999. |
| v. | The cancellation of the requirement to maintain a bank guarantee in
respect of MTR. |

| In 1998 and 1999, the Company adopted the provisions of the MoU. Beginning
November 1999, the Company and the KSO Investors had begun to renegotiate
the terms of the KSO agreements in conjunction with the changing environment
and the expiration of certain terms in the MoU. Among others, it was agreed
to return to most of the provisions of the original KSO agreements beginning
January 1, 2000. |
| --- |
| KSO I |
| In 2002, the Company and the stockholders of Pramindo (KSO Investor) reached
an agreement in which the Company acquired 100% of Pramindo and gained
control over the operation of KSO Unit I (Note 6b). |
| KSO III |
| Effective on July 31, 2003, the Company and the stockholders of AWI (KSO
Investor) reached an agreement in which the Company acquired 100% of AWI and
gained control over the operation of KSO Unit III (Note 6c). |
| KSO IV |
| The sale of KSO IV to Indosat, which was placed under the cross-ownership
transactions (Note 4), was cancelled. The Company has, however, entered into
an amendment to the KSO agreement (Note 52b). |

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52.	JOINT OPERATION SCHEME (KSO) (continued)
	KSO VI
	In 2001, the Company and the stockholders of Dayamitra (KSO Investor)
reached an agreement in which the Company acquired 90.32% of Dayamitra and
gained control over the operation of KSO Unit VI. In addition, the Company
entered into a put and call option arrangement for the remaining 9.68% of
the issued and paid up capital of Dayamitra (Note 6a).
	KSO VII
	The Company and PT Bukaka Singtel International intend to continue the KSO
schemes in accordance with original agreements with some additional
projects.
	The gross MTR and DKSOR of the unconsolidated KSOs for the years ended
December 31, 2001, 2002 and 2003 were Rp3,771,000 million, Rp3,586,000
million and Rp2,769,530 million, respectively.
53.	REVENUE-SHARING ARRANGEMENTS
	The Company has entered into separate agreements with several investors
under Revenue-Sharing Arrangements (RSA) to develop fixed lines, public
card-phone booths (including their maintenance) and related supporting
telecommunications facilities.
	As of June 30, 2004, the Company has 27 RSA with 21 partners. The RSA were
located mostly in Palembang, Pekanbaru, Jakarta and Surabaya with concession
period ranging from 24 to 172 months.
	Under the RSA, the investors finance the costs incurred in developing
telecommunications facilities. Upon completion of the construction, the
Company manages and operates the facilities and bears the cost of repairs
and maintenance during the revenue-sharing period. The investors legally
retain the rights to the property, plant and equipment constructed by them
during the revenue-sharing periods. At the end of each revenue-sharing
period, the investors transfer the ownership of the facilities to the
Company.
	The revenues earned from the customers in the form of line installation
charges are allocated in full to the investors. The revenues from outgoing
telephone pulses and monthly subscription charges are shared between the
investors and the Company based on certain agreed ratio. Certain additional
arrangements are made for revenues earned from analog mobile cellular,
whereby revenues from international outgoing pulses are allocated in full to
the Company. Revenues earned from pay phone cards during the revenue-sharing
period are shared 60:40 (in favor of the investors) based on the recorded
usage of pulses.
	The net book value of property, plant and equipment under RSA which have
been transferred to property, plant and equipment amounted to nil and
Rp23,355 million in 2003 and 2004, respectively (Note 16).
	Pursuant to the amendment of KSO IV agreement with MGTI (Investor of KSO IV)
dated January 29, 2004 in respect of revenue sharing mechanism, the Company
interpreted that the new revenue sharing mechanism in KSO IV is
substantially changed to Revenue Sharing Arrangement.

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| 54. |
| --- |
| Under Law No. 36 year 1999 and Government Regulation No. 52 year 2000,
tariffs for the use of telecommunications network and telecommunication
services are determined by providers based on the tariffs category,
structure and with respect to fixed line telecommunication services price
cap formula set by the Government. |
| Fixed Line Telephone Tariffs |
| Fixed line telephone tariffs are imposed for network access and usage.
Access charges consist of a one-time installation charge and a monthly
subscription charge. Usage charges are measured in pulses and classified as
either local or domestic long-distance. The tariffs depend on call distance,
call duration, the time of day, the day of the week and holidays. |
| Tariffs for fixed line telephone are regulated under Minister of
Communications Decree No. KM.12 year 2002 dated January 29, 2002 concerning
the addendum of the decree of Minister of Tourism, Post and
Telecommunication (MTPT) No. 79 year 1995, concerning the Method for Basic
Tariff Adjustment on Domestic Fixed Line Telecommunication Services.
Furthermore, the Minister of Communications issued Letter No. PK 304/1/3
PHB-2002 dated January 29, 2002 concerning increase in tariffs for fixed
line telecommunications services. According to the letter, tariffs for fixed
line domestic calls would increase by 45.49% over three years. The average
increase in 2002 was 15%. This increase was effective on February 1, 2002. |
| To follow up the previous Letter, the Ministry of Communications issued
Letter No. PR.304/2/4/PHB-2002 dated December 17, 2002 regarding tariff
adjustments for domestic fixed line telecommunications services effective on
January 1, 2003. Considering the fact that the Independent Regulatory Body,
a precondition for the tariff adjustment, had not been established, The
Minister of Communications postponed the implementation of tariffs
adjustments by issuing Ministerial Letter No. PR.304/1/1/PHB-2003, dated
January 16, 2003. |
| Mobile Cellular Telephone Tariffs |
| Tariff for cellular providers are set on the basis of the MTPT Decree No.
KM. 27/PR.301/MPPT-98 dated February 23, 1998. Under the regulation, the
cellular tariffs consist of activation fees, monthly charges and usage
charges. |
| The maximum tariff for the activation fee is Rp200,000 per new subscriber
number. The maximum tariff for the monthly charges is Rp65,000. Usage
charges consist of the following: |

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TELECOMMUNICATIONS SERVICES TARIFFS (continued)

| a. |
| --- |
| The maximum basic airtime tariff charged to the originating cellular
subscriber is Rp325/minute. Charges to the originating cellular
subscriber are calculated as follows: |

1. Cellular to cellular.	:	2 times airtime rate
2. Cellular to PSTN.	:	1 times airtime rate
3. PSTN to cellular.	:	1 times airtime rate
4. Card phone to cellular	:	1 times airtime rate plus 41% surcharges

b. Usage Tariffs

| 1. | Usage tariffs charged to a cellular subscriber who makes a
call to a fixed line (PSTN) subscriber are the same as the usage
tariffs applied to PSTN subscribers. For the use of local PSTN
network, the tariffs are computed at 50% of the prevailing local
PSTN tariffs. |
| --- | --- |
| 2. | The long-distance usage tariffs between two different service
areas are the same as the prevailing tariffs for domestic
long-distance call (SLJJ) applied to PSTN subscribers. |

Based on the Decree No. KM. 79 year 1998 of the Ministry of Communications, the maximum tariff for prepaid customers may not exceed 140% of the peak time tariffs for post-paid subscribers.

| Interconnection Tariffs |
| --- |
| Interconnection tariffs regulate the sharing of interconnection calls
between the Company and other cellular operators. |
| The current interconnection tariff is governed under MTPT Decree No.
KM.46/PR.301/MPPT-98 (KM. 46 year 1998) dated February 27, 1998 which came
into effect on April 1, 1998 and was further revised by the Minister of
Communications Decree No. KM.37 year 1999 dated June 11, 1999 (KM. 37 year
1999). |

| i. |
| --- |
| Based on KM. 37 year 1999, effective December 1, 1998, the international
interconnection tariffs are calculated by applying the following charges
to successful incoming and outgoing calls to the Companys network: |

	Tarif
Access charge	Rp850 per call
Usage charge	Rp550 per paid minute
Universal Service Obligation (USO)	Rp750 per call

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TELECOMMUNICATIONS SERVICES TARIFFS (continued)

b. Usage Tariffs (continued)

Interconnection Tariffs (continued)

ii.
Based on KM. 46 year 1998, cellular interconnection tariffs with PSTN are
as follows:

1.	Local Calls
	For local calls from a mobile cellular network to PSTN, the cellular
operator pays the Company 50% of the prevailing tariffs for local
calls. For local calls from PSTN to a cellular network, the Company
charges its subscribers the applicable local call tariff plus an
airtime charge, and pays the cellular operator the airtime charge.
2.	Domestic Long-distance Calls
	KM.46 year 1998 provides tariffs which vary among long-distance
carriers depending upon the routes and the long-distance network used.
Pursuant to this decree, for long-distance calls which originate from
the PSTN, the Company is entitled to retain a portion of the
prevailing long-distance tariffs, which portion ranges from 40% of the
tariffs, in cases where the entire long-distance traffic is carried by
cellular operators network and delivered to another, and up to 85% of
the tariffs, in cases where the entire long-distance traffic is
carried by the PSTN.
	For long-distance calls which originate from a cellular operator, the
Company is entitled to retain a portion of the prevailing
long-distance tariffs, which portion ranges from 25% of the tariff, in
cases where the entire long-distance traffic is carried by cellular
operators network and the call is delivered to a cellular subscriber,
and up to 85% of the tariff, in cases where the entire long-distance
traffic is carried by the PSTN and the call is delivered to a PSTN
subscriber.
	Interconnection tariffs with mobile satellite networks (STBSAT) are
established based on Joint Operation Agreements between the Company
and STBSAT providers pursuant to Minister of Communications Decree No.
KM. 30 year 2000 concerning Global Mobile Personal Telecommunication
Service Tariffs by Garuda Satellite dated March 29, 2000. Flat
interconnection tariffs per minute apply for those companies.
	Interconnection tariffs with mobile cellular networks, including USO,
are determined based on the duration of the call. Access and usage
charges for international telecommunications traffic interconnection
with telecommunications networks of more than one domestic carrier are
to be shared proportionately with each carrier involved, which
proportion is determined by the MTPT.

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54.
Interconnection Tariffs (continued)

ii. Mobile and fixed cellular interconnection with the PSTN (continued)

| 2. |
| --- |
| Interconnection tariffs between a fixed wireless network and PSTN, and
amongst PSTN, are regulated under MTPT letter No. KU.506/1/1/MPPT-97
dated January 2, 1997 and letter No. KU.506/4/6/MPPT-97 dated July 21,
1997. Currently, Ratelindo is the only operator of a fixed wireless
network and apart from the Company, PT Batam Bintan Telekomunikasi
(BBT) is the only operator of PSTN. For fixed wireless
interconnection with the PSTN and BBT with the PSTN, the
sender-keeps-all basis for local calls is applied and for domestic
long-distance calls that originate from Ratelindos network and
transit to the PSTN, the Company receives 35% of Ratelindos revenue
for such calls. For domestic long-distance calls that originate from
the PSTN, the Company retains 65% as its revenue for such calls. For
long distance calls from and to BBT, the Company retains 75% of the
revenue while BBT receives the remaining 25%. |

iii.
Based on KM. 46 year 1998, the mobile cellular interconnection tariffs
with other mobile cellular providers are as follows:

1.	Local Calls
	For local calls from one cellular telecommunications network to
another, the originating cellular operator pays the airtime to the
destination cellular operator. If the call is carried by the PSTN, the
cellular operator pays the PSTN operator 50% of the prevailing tariffs
for local calls.
2.	Domestic Long-distance Calls
	For long-distance calls which are originated from a cellular
telecommunications network, the cellular operator is entitled to
retain a portion of the prevailing long-distance tariffs, which
portion ranges from 15% of the tariff in cases where the entire
long-distance traffic is not carried by the cellular operator, up to
60% of the tariff in cases where the entire long-distance portion is
carried by the cellular operator and the call is delivered to another
cellular operator, or up to 75% if the call is delivered to the same
cellular operator.
	In connection with the issuance of Law No. 36 year 1999 and Government
Regulation No. 52 year 2000, the Minister of Communications, on May
31, 2001, issued Decree No. KM. 20 year 2001, concerning Operations of
Telecommunications Network and KM. 21 year 2001, concerning Operations
of Telecommunications Services, which became effective from the date
of the decree. Subsequently, the Minister of Communications issued
Decree No. KM. 84 year 2002 concerning Telecommunication Traffic
Clearing Process.

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54.	TELECOMMUNICATIONS SERVICES TARIFFS (continued)
	Public Phone Kiosk (Wartel) Tariff
	The Company is entitled to retain 70% of the telephone tariff based on
Director of Operational and Marketing Decree No. KD 01/HK220/OPSAR-33/2002
dated January 16, 2002, which came into effect on February 16, 2002. This
governs the transition of the business arrangement between Telkom and Wartel
providers, from a commission-based revenue sharing into agreed usage charges
(pulses).
	On August 7, 2002, the Minister of Communications issued Decree No. KM. 46
year 2002 regarding the operation of phone kiosks. The decree provides that
the Company is entitled to retain a maximum of 70% of the phone kiosk basic
tariffs for domestic calls and up to 92% of phone kiosk basic tariffs for
international calls.
55.	COMMITMENTS

| a. |
| --- |
| As of June 30, 2004, the amount of capital expenditures committed under
contractual arrangements, principally relating to procurement and
installation of switching equipment, transmission equipment and cable
network, are as follows: |

	Amounts in — foreign currencies	Equivalent
Currencies	(in thousands)	in Rupiah
Rupiah		5,918,158
U.S. Dollars	520,370	4,894,080
Total		10,812,238

The above balance includes the following significant agreements:

| (i) |
| --- |
| In September 2001, Telkomsel entered into agreements with its three
suppliers called Strategic Partners, namely Motorola, Inc.,
Ericsson Radio A.B., and Siemens Aktiengesellschaft (AG) and one
Strategic Supplier (Nokia Oyj.); which was subsequently also called
Strategic Partner for the procurement of equipment and related
services. In accordance with the agreements with these suppliers, the
procurement will be made based on the Notification to Proceed
(NTP), the agreed procurement planning between Telkomsel and its
suppliers for the coming 18 months divided into 6-quarterly periods,
which are confirmed with the issuance of Execution Orders (EO) on a
quarterly basis. The total amount in the EO could be higher or lower
but not less than 75% of the amount in the NTP. |

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

| | The agreements are valid and effective as of the execution date by
the respective parties for a period of three years and extendable
upon mutual agreement of both parties to a maximum of two additional
years. |
| --- | --- |
| | Telkomsels procurement (import) under the agreements with Motorola
and Nokia Oyj were made through the Letter of Credit Facilities from
Citibank N.A. and Deutsche Bank (which expired in 2003). Telkomsels
procurement under the agreements with PT Ericsson Indonesia and
Siemens AG will be made through the credit facilities from Citibank
International plc (Note 27b). |
| | Telkomsel has not collateralized any of its borrowings, loans
Guaranteed Notes or other credit facilities. |
| | The terms of the various agreements with Telkomsels lenders and
financiers include a number of pledges as well as financial and other
covenants which must be complied with including, inter alia, certain
restrictions on dividend and other profit distributions. The terms of
the relevant agreements also contain default and cross default
clauses. Management is not aware of any breaches of the term of these
agreements and does not foresee any such breaches occurring in the

future. |
| (ii) | Procurement of TELKOM-2 Satellite |
| | In accordance with Agreement No.K.TEL.191/HK.810/UTA-00/2002 dated
October 24, 2002, which is amended on December 15, 2003, the Company
and Orbital Sciences Corporation (Contractor) agreed on the
procurement of the TELKOM-2 satellite. The total price of
US$73,140,322 is expected to be fully paid in January 2005. The
agreement also includes a refund provision of US$4,338,292 for any
transponder that has its communication capabilities reduced below 3dB
and which cannot be corrected by switching to a redundant
transponder. |
| (iii) | Launching of TELKOM-2 Satellite |
| | On November 8, 2002, the Company and ARIANESPACE S.A. agreed on the
launching of TELKOM-2 Satellite between November 1, 2004 and January
31, 2005. Payments totaling US$62,880,000 is expected to be settled
in September 2004. |

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(v)	CDMA Procurement Agreement with Samsung Consortium
	On October 9, 2002, the Company signed an Initial Purchase Order
Contract for CDMA 2000-IX with Samsung Consortium for Base Station
Subsystem (BSS) procurement in Regional Division II, and on
December 23, 2002, the Company signed a Master Procurement
Partnership Agreement (MPPA). The MPPA provides for planning,
manufacturing, delivery, and construction of 1.6 million lines as
well as service level agreement. The MPPA between the Company and
Samsung consists of construction of 1,656,300 lines of Network and
Switching Subsystem (NSS) for nationwide and 802,000 lines of BSS
for Regional Division III, IV, V, VI and VII for US$116 per line for
BSS and US$34 per line for NSS. This project will be partly financed
by The Export-Import Bank of Korea as contemplated in the Loan
Agreement dated August 27, 2003. The total facility amounts to
US$123,965,000 and will be available from the execution of the
agreement until April 2006 (Note 55j).
(vi)	CDMA Procurement Agreement with Ericsson CDMA Consortium
	The Company and Ericsson CDMA Consortium have also entered into a
Master Procurement Partnership Agreement (MPPA) on December 23,
2002. The MPPA consists of construction of 631,800 lines of BSS for
US$116 per line. This MPPA is part of the planning, manufacturing,
delivery and construction of total 1.6 million CDMA lines as well as
service level agreement.
	Under the MPPA, the work related to network deployment shall be
carried out and completed within 42 months (six months after end of
fiscal year 2005).
(vii)	Partnership Agreement for the Construction and Provision
of High Performance Backbone in Sumatera
	On November 30, 2001, the Company signed a partnership agreement with
a consortium consisting of PT Pirelli Cables Indonesia and PT Siemens
Indonesia for the construction and provision of a high performance
backbone network in Sumatera. The agreement became effective as of
June 10, 2002. The scope of work includes the provision of an optical
fiber cable, together with transmission equipment and network
management systems. The Company is obliged to pay approximately
US$46,322,629 and Rp172,690 million as consideration. On June 12,
2003, the parties agreed to amend this agreement to reflect
additional work being carried out by the consortium in consideration
for a lump-sum additional US$2,830,086 and Rp1,699 million.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

| (viii) | Partnership Agreement for the Development of a PSTN Regional
Junction for Regional Division V (East Java) |
| --- | --- |
| | On December 5, 2001, the Company entered into a partnership agreement
with a consortium consisting of Sumitomo Corporation, NEC Corporation
and PT Nasio Karya Pratama for the development of a high quality PSTN
Regional Junction for Regional Division V (East Java). The scope of
work includes the development of a SDH transmission system, as well
as the provision of ancillary fiber optic and other related
equipment. The Company is obliged to pay approximately
JP¥3,670,938,358 and Rp125,464 million which is inclusive of
value-added tax. The parties agreed to add another partner to the
consortium, PT Communication Cable Systems Indonesia, on September
27, 2002. In accordance with the amendment of the partnership
agreement on December 11, 2003, the parties agreed to amend the
contract value to JP¥1,258,833,916 and Rp188,788 million (exclusive
of value-added tax). The amounts will be paid in the third quarter of
2004. |
| (ix) | Supply Contract for Thailand-Indonesia-Singapore (TIS) Cable Network |
| | On November 27, 2002, the Company entered into a supply contract with
NEC Corporation, the Communications Authority of Thailand (the CAT)
and Singapore Telecommunications Limited (SingTel) whereby NEC
Corporation has agreed to construct a submarine fiber optic network
linking Thailand, Indonesia and Singapore. Under the terms of this
agreement, the Company, SingTel and the CAT will contribute equally
to a payment of US$32,680,000 (inclusive of value-added tax). The
amount will be fully settled in the last quarter of 2004. |

| b. |
| --- |
| Telkomsel purchases equipment from several countries and, as a result,
is exposed to movements in foreign currency exchange rates. As of June
30, 2004, Telkomsel had outstanding forward foreign exchange contracts
with Deutsche Bank (DB) for US$5,000,000 to protect against foreign
exchange risks relating to its foreign currency denominated purchases.
The primary purpose of Telkomsels foreign currency hedging activities
is to protect against the volatility associated with foreign currency
purchases of equipment and other assets in the normal course of
business. The outstanding contract is scheduled to be settled at July
20, 2004. |

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COMMITMENTS (continued)

c.	MPPA with PT INTI
	The Company and PT INTI signed an MPPA on August 26, 2003 whereby PT
INTI is appointed to construct a CDMA fixed wireless access network and
integrate such network with the Companys existing network and all
ancillary services relating thereto in West Java and Banten. Under the
terms of this Agreement, PT INTI must deliver the CDMA 2000 IX system
within thirty-four months after August 26, 2003 for a total of
approximately US$22,856,791 and Rp61,408 million (inclusive of
valued-added tax). PT INTI will service and maintain the CDMA 2000 IX
system pursuant to a Service Level Agreement dated the same date in
return for an annual consideration of US$2,305,000.
d.	MPPA with Motorola
	On March 24, 2003, the Company signed an MPPA with Motorola, Inc. Under
the MPPA, Motorola is obliged to undertake and be jointly responsible
for the demand forecast and solely responsible for the survey, design,
development, manufacture, delivery, supply, installation, integration
and commissioning of the network, including all project management,
training and other related services in relation to the establishment of
the T-21 Program.
	The MPPA consists of 222,500 lines of BSS (radio system) for Regional
Division I Sumatera for a total of approximately US$20,686,855 and
Rp61,268 million. The agreed price does not include the service level
agreement, training for technical staff and documentation. The network
will use Samsungs NSS as already contracted on December 23, 2002 (Note
55a(v)). The agreement is valid until mid of 2006.
e.	Partnership Agreement with Siemens Consortium
	The Company entered into a Partnership Agreement with a consortium led
by Siemens AG on September 24, 2003 for the development, procurement and
construction of a fiber optic backbone transmission network in
Kalimantan and Sulawesi, a related work management system and the
provision of maintenance services in connection with this network. Other
members of the consortium include PT Siemens Indonesia, PT Lembaga
Elektronik Indonesia and Corning Cable System GmbH & Co.KG. The
consideration payable by the Company for the fiber optic networks is
approximately US$3,776,269 plus Rp74,021 million for the network located
within Kalimantan and approximately US$3,815,295 plus Rp70,733 million
for the network located within Sulawesi.

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COMMITMENTS (continued)

| f. | Metro Junction and Optical Network Access Agreement for Regional
Division III with PT INTI |
| --- | --- |
| | On November 12, 2003, the Company entered into an agreement with PT INTI
for the construction and procurement of an optical network, as well as a
network management system and other related services and equipment, with
respect to Regional Division III (West Java). Under this agreement, the
Company is obliged to pay PT INTI a total consideration of approximately
US$6,479,992 and Rp112,427 million. |
| g. | Agreement for the Procurement of Softswitch System Class 4 with a
consortium led by Santera-Olex |
| | On December 18, 2003, the Company entered into an agreement with a
consortium led by Santera-Olex for the construction and procurement of a
softswitch system (class 4) and the improvement of switching capacity in
the existing switching system in Jakarta, Bandung and Surabaya. Pursuant
to the terms of this agreement, the Company will pay in third quarter of
2004 approximately US$4,050,510 and Rp2,457 million. |
| j. | In December 2003, Napsindo entered into an agreement with Indosat
with regards to an installation of fiber optic international link cable
from Jakarta to Hongkong. Napsindo shall pay fixed revenue of
US$100,000 and 30% of income to Indosat. Napsindo also entered into a
sales VSAT contract with PT Pundi Karya Abadi amounting to US$120,000
(inclusive of value-added tax). |

CONTINGENCIES

| a. |
| --- |
| In May 2003, however, the SEC informed the Company that it considered
that the submitted 2002 consolidated financial statements were
un-audited as the audit firm that was originally appointed to perform
the 2002 audit was not qualified for SEC purposes. Due to the time
consumed in selecting an SEC qualified auditor, KAP Drs. Haryanto Sahari
& Rekan (formerly called KAP Drs. Hadi Sutanto & Rekan), the member
firm of PricewaterhouseCoopers in Indonesia, began their work in July
2003. As a result, the Company was not able to meet its June 30, 2003
deadline to file a fully compliant Annual Report on Form 20-F with the
SEC. |

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CONTINGENCIES (continued)

| | Because of the foregoing and the fact that Annual Report was filed after
the June 30, 2003 deadline, the Company may face an SEC enforcement
action under U.S. securities law and other legal liability and adverse
consequences such as delisting of its ADSs from the New York Stock
Exchange. In addition, the staff of the SEC has described a press
release that the Company issued and furnished to the SEC on Form 6-K in
May 2003 as grossly understating the nature and severity of the staffs
concerns regarding matters related to the Companys filing of a
non-compliant Annual Report. Such press release could also form the
basis of an SEC enforcement action and other legal liability. The
Company cannot at this time predict the likelihood or severity of an SEC
enforcement action or any other legal liability or adverse consequences. |
| --- | --- |
| b. | In the ordinary course of business, the Company has been named as a
defendant in various legal actions. Based on Managements estimate of
the outcome of these matters, the Company accrued Rp35,809 million at
June 30, 2004. |
| c. | In connection with the re-audit of the Companys 2002
consolidated financial statements, the former auditor KAP Eddy Pianto
filed lawsuits in the South Jakarta District Court against KAP Drs.
Haryanto Sahari & Rekan (formerly called KAP Drs. Hadi Sutanto &
Rekan) (the Companys auditor for the re-audit of the 2002
consolidated financial statements), the Company, KAP Hans Tuanakotta &
Mustofa (the Companys 2001 auditor) and the Capital Market Supervisory
Agency BAPEPAM (collectively, Defendants), alleging that the
Defendants, through the reaudit of the Companys 2002 consolidated
financial statements, had conspired to engage in an illegal action
against KAP Eddy Pianto, tarnishing the reputation of KAP Eddy Pianto
in the public accounting profession. KAP Eddy Pianto seeks to recover
approximately Rp7,840 billion in damages from the Company and its
co-defendants. The mediation process to resolve the dispute amicably
did not succeed and the Company is scheduled to formally submit its
response to the claim soon. The resolution of this issue at present
time cannot be determined. |
| d. | The Company is being inquired by Commissions for Business
Competition Watch (Komisi Pengawas Persaingan Usaha) related to alleged
unfair business practice in providing international telecommunications
services, which, if proven, breaches articles 15, 19 and 25 of Law of
the Republic of Indonesia No. 5/1999 on Anti Monopolistic Practices and
Unfair Business Competition (Competition Law). A breach of this
regulation may result in a penalty at a minimum of Rp5,000 million and
at a maximum of Rp100,000 million. The Company has not accrued any
amount as of June 30, 2004 because the Company is unable to estimate
the likelihood of the outcome. |
| e. | As of June 30, 2004, the Company has been named as a defendant in
various legal actions in respect of landright ownership and
telecommunication services. The Company did not provide a provision for
the contingent loss from the litigation, due to the legal status is
uncertain and the estimated contingent loss is not significant. |
| f. | On March 30, 2004 the Minister of Communication issued Announcement
No. PM.2 of 2004 regarding the Implementation of Restructuring in the
Telecommunication Sector which, among others, conveys the compensation
for early termination of exclusive rights. The Government shall pay to
TELKOM (including its KSO Partners) an amount of Rp 478 billion after
tax. The payment of compensation shall be made gradually from the on
top (above allocated ceiling) fund of the State Budget for the
Ministry of Communications after approval by Parliament. As of June 30,
2004 the compensation payment from Government is still uncertain,
therefore, the Company did not record the possible income. |

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57.
The balances of monetary assets and liabilities denominated in foreign
currencies are as follows:

Foreign		Foreign
currencies	Rupiah	currencies	Rupiah
(in thousands)	Equivalent	(in thousands)	Equivalent
ASSETS
Cash and cash equivalents
U.S. Dollars	184,423	1,525,419	89,948	846,480
Euro	18,606	175,957	39,681	451,743
Japanese Yen	266	18	1,689	145
Temporary investment
U.S. Dollars	2,000	16,540
Trade accounts receivable
Related parties
U.S. Dollars	7,630	63,097	12,801	119,644
Third parties
U.S. Dollars	1,571	12,989	8,452	79,242
Other accounts receivable
U.S. Dollars	66,491	1,808	190,654	1,768,398
French Franc	4,466	4,966	4,466	5,447
Netherland Guilder	756	2,745	756	2,745
Other current assets
U.S. Dollars	8,978	74,247	5,792	51,855
Advances and other non-current assets
U.S. Dollars	20,878	172,664	20,571	189,642
Euro			4	47
Escrow accounts
U.S. Dollars	34,519	285,473	70,875	624,298
Total Assets		2,335,923		4,139,686

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)

Foreign		Foreign
currencies	Rupiah	currencies	Rupiah
(in thousands)	equivalent	(in thousands)	equivalent
Liabilities
Trade accounts payable
Related parties
U.S. Dollars	14,044	116,260	77,410	728,105
Great Britain Pound Sterling	160	2,181
Australian Dollar	20	111
Singapore Dollars			27	151
Japanese Yen			266	23
Euro	662	6,269	1,009	11,491
Third parties
U.S. Dollars	24,599	203,683	48,772	458,681
Euro	344,303	3,260	342	3,899
Great Britain Pound Sterling	64	878	88	1,495
Japanese Yen	265,976	18,363
Singapore Dollars	26	120	265	23
Other accounts payable
U.S. Dollars	32	267
Accrued expenses
U.S. Dollars	37,720	312,516	33,243	308,904
Japanese Yen	13,101	904	25,056	2,170
Singapore Dollars			1,299	7,125
Great Britain Pound Sterling	37,511	511	46	780
French Franc	710	792	710	899
Netherland Guilder	482	1,598	482	1,815
Euro	32,384	306,645	331	592,452
Short-term bank loans
Third parties
U.S. Dollars			82,254	773,528
Advances from customers and suppliers
U.S. Dollars	45,882	379,408	45,972	432,367
Great Britain Pound Sterling	0	36
Euro	12,549	1,118,826	12,549	143,079
Japanese Yen	25,040	1,729

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)


Foreign			Foreign
currencies	Rupiah		currencies	Rupiah
(in thousands)	equivalent		(in thousands)	equivalent
Liabilities
Liabilities (continued)
Current maturities of
long-term liabilities
U.S. Dollars	89,614	741,999	136,234	1,281,392
Euro	12,011	117,575	18,924	215,511
Japanese Yen	431,856	30,230	758,963	65,577
Long-term liabilities
U.S. Dollars	487,519	4,037,406	633,865	5,962,631
Euro	16,528	156,502	56,399	642,271
Japanese Yen	17,210,861	1,188,243	16,482,995	1,424,185
Total liabilities		8,746,312		13,058,554
Net liabilities		(6,410,389	)	(8,918,868	)

| 58. |
| --- |
| The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Indonesia (Indonesian GAAP),
which differ in certain significant respects with generally accepted
accounting principles in the United States of America (U.S. GAAP). A
description of the differences and their effects on net income and
stockholders equity are set forth below. |

(1) Description of differences between Indonesian GAAP and U.S. GAAP

| a. |
| --- |
| Under Indonesian GAAP, termination benefits are recognized as
liabilities when certain criteria are met (e.g. the enterprise is
demonstratively committed to provide termination benefits as a result
of an offer made in order to encourage early retirement). |
| Under U.S. GAAP, termination benefits are recognized as liabilities
when the employees accept the offer and the amount can be reasonably
estimated. |

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP

b.	Foreign exchange differences capitalized to property under construction
	Under Indonesian GAAP, foreign exchange differences resulting from
borrowings used to finance property under construction are
capitalized. Capitalization of foreign exchange differences cease
when the construction of the qualifying asset is substantially
completed and the constructed property is ready for its intended use.
	Under U.S. GAAP, foreign exchange differences are charged to current
operations.
c.	Interest capitalized on property under construction
	Under Indonesian GAAP, qualifying assets, to which interest cost can
be capitalized, should be those that take a substantial period of
time to get ready for its intended use or sale, i.e. minimum 12
months. To the extent that funds are borrowed specifically for the
purpose of obtaining a qualifying asset, the amount of interest cost
eligible for capitalization on that asset should be determined based
on the actual interest cost incurred on that borrowing during the
period of construction less any investment income on the temporary
investment of those borrowings.
	Under U.S. GAAP, there is no limit on the length of the construction
period in which the interest cost could be capitalized. The interest
income arising from any unused borrowings is recognized directly to
current operations.
d.	Revenue-sharing arrangements
	Under Indonesian GAAP, property, plant and equipment built by an
investor under revenue-sharing arrangements are recognized as
property, plant and equipment under revenue-sharing arrangements in
the books of the party to whom ownership in such properties will be
transferred at the end of the revenue-sharing period, with a
corresponding initial credit to unearned income. The property, plant
and equipment are depreciated over their useful lives, while the
unearned income is amortized over the revenue-sharing period. The
Company records its share of the revenues earned net of amounts due
to the investors.
	Under U.S. GAAP, the accounting for revenue-sharing arrangements
depends on whether or not the investor will receive a guaranteed
minimum return. When there is no guaranteed investment return to the
investor, the revenue-sharing arrangements are accounted for in a
manner similar to operating lease. When there is a guaranteed
investment return, the assets under revenue-sharing arrangements are
recorded and, correspondingly, an obligation under revenue-sharing
arrangements is recorded. A portion of the investors share in
revenue is recorded as interest expense based on the implicit rate of
return and the balance is treated as a reduction of the obligation.
Revenues are recorded on a gross basis.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

e.	Revaluation of property, plant and equipment
	While Indonesian GAAP does not generally allow companies to recognize
increases in the value of property, plant and equipment that occur
subsequent to acquisition, an exception is provided for revaluations
made in accordance with Government regulations. The Company revalued
its property, plant and equipment that were used in operations as of
January 1, 1979 and January 1, 1987.
	Under U.S. GAAP, asset revaluations are not permitted. The effects of
the previous revaluations have been fully depreciated in 2002, such
that there is no difference in equity as of December 31, 2002.
f.	Pension
	In 1994 and 1998, the Company provided increases in pension benefits
for pensioners. Under Indonesian GAAP, the prior service costs
attributable to the increases in pension benefits for pensioners were
directly charged to expense in those years. Under U.S. GAAP, because
the majority of plan participants are still active, such prior
service costs are deferred and amortized systematically over the
remaining service period for active employees.
	Under Indonesian GAAP, the Company amortizes the cumulative
unrecognized actuarial gain or loss over four years. Under U.S. GAAP,
any cumulative unrecognized actuarial gain or loss exceeding 10% of
the greater of the projected benefit obligation or the fair value of
plan assets is recognized in the statement of income on a
straight-line basis over the estimated remaining service period.
	Under U.S. GAAP, the Company would be required to recognize an
additional minimum liability when the accumulated benefit obligation
exceeds the fair value of the plan assets, and an equal amount would
be recognized as an intangible asset, provided that the asset
recognized does not exceed the amount of unrecognized prior service
cost.
g.	Equity in net income or loss of associated companies
	The Company records its equity in net income or loss of associated
companies based on the associates financial statements that have
been prepared under Indonesian GAAP.
	For U.S. GAAP reporting purposes, the Company recognized the effect
of the differences of U.S. GAAP and Indonesian GAAP in the investment
accounts and its share of the net income or loss of those associates.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

h.	Land rights
	In Indonesia, the title of land rests with the State under the Basic
Agrarian Law No. 5 of 1960. Land use is accomplished through land
rights whereby the holder of the right enjoys the full use of the
land for a stated period of time, subject to extensions. The land
rights generally are freely tradeable and may be pledged as security
under borrowing agreements. Under Indonesian GAAP, land ownership is
not depreciated unless it can be foreseen that the possibility for
the holder to obtain an extension or renewal of the rights is
remote.
	Under U.S. GAAP, the cost of acquired land rights is amortized over
the period the holder is expected to retain the land rights.
i.	Equipment to be installed
	Under Indonesian GAAP, temporarily idle equipment or equipment that
is awaiting installation is not depreciated.
	Under U.S. GAAP, temporarily idle equipment should continue to be
depreciated. In 2002, prior year equipment to be installed was fully
installed and their carrying values have been reclassified to
property, plant and equipment.
j.	Revenue recognition
	Under Indonesian GAAP, revenues from cellular and fixed wireless
services connection fees are recognized as income when the
connection takes place (for postpaid service) or at the time of
delivery of starter packs to distributors, dealers or customers (for
prepaid service). Installation fees for wire line services are
recognized at the time of installation. The revenue from calling
cards (Kartu Telepon) is also recognized when the Company sells
the card.
	Under U.S. GAAP, revenue from front-end fees are deferred and
recognized over the expected term of the customer relationship.
Direct incremental cost were not significant. Revenues from calling
cards are recognized upon usage or expiration.
k.	Goodwill
	Under Indonesian GAAP, goodwill is amortized over a period, not
exceeding 20 years, that it is expected to benefit the Company.
	Under U.S. GAAP, effective January 1, 2002, goodwill is no longer
amortized but rather subjected to a test for impairment.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

l.	Capital leases
	Under Indonesian GAAP, a leased assets is capitalized only if all of
the following criteria are met: (a) the lessee has an option to
purchase the leased asset at the end of the lease period at a price
agreed upon at the inception of the lease agreement, and (b) the sum
of periodic lease payments, plus the residual value, will cover the
acquisition price of the leased asset and related interest, and (c)
there is a minimum lease period of 2 years.
	Under U.S. GAAP, a leased asset is capitalized if one of the
following criteria is met: (a) there is an automatic transfer of
ownership at the end of the lease term; or (b) the lease contains a
bargain purchase option; or (c) the lease term is for 75% or more of
the economic life of the asset; or (d) the lease payments are at
least 90% of the fair value of the asset.
m.	Acquisition of Dayamitra
	The Company acquired a 90.32% interest in Dayamitra and
contemporaneously acquired a call option to buy the other 9.68% at a
fixed price at a stated future date, and provided to the minority
interest holder a put option to sell the other 9.68% to the Company
under those same terms; meaning that the fixed price of the call is
equal to the fixed price of the put option. Under U.S. GAAP, the
Company should account for the option contracts on a combined basis
with the minority interest and account for it as a financing of the
purchase of the remaining 9.68% minority interest. As such, under
U.S. GAAP, the Company has consolidated 100% of Dayamitra and
attributed the stated yield earned under the combined derivative and
minority interest position to interest expense.
	Under Indonesian GAAP, the Company accounts for the remaining 9.68%
of Dayamitra as minority interest. In addition, the option price
that has been paid by the Company is presented as Advance payments
for investments in shares of stock.
n.	Reversal of difference due to change of equity in
associated companies
	Under Indonesian GAAP, differences previously credited directly to
equity as a result of equity transactions in associated companies
are released to the statement of income upon the sale of an interest
in the associate in proportion with the percentage of the interest
sold.
	Under U.S. GAAP, it is the Companys policy to include differences
resulting from equity transactions in associated companies in
equity. Such amounts can not be released to the statement of income
and consequently remain in equity indefinitely.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

o.	Asset retirement obligations
	Under Indonesian GAAP, legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a
long-lived assets are charged to current operations as incurred.
	Under U. S. GAAP, the obligations are capitalized to the related
long-lived assets and depreciated over the useful life of the
assets.
p.	Deferred income taxes
	Under Indonesian GAAP, the Company does not recognize deferred taxes
on temporary differences between the financial statement carrying
amounts and tax bases of equity method investments when it is not
probable that these differences will reverse in the foreseeable
future.
	Under US GAAP, deferred taxes are recognized in full on temporary
differences between the financial statement carrying amounts and tax
bases of equity method investments.
q.	Impairment of assets
	Under Indonesian GAAP, an impairment loss is recognized whenever the
carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. The recoverable amount of fixed assets is
greater of its net selling price or value in use. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset. An impairment loss can be reversed if there
has been a change in the estimates used to determine the recoverable
amount. An impairment loss is only reversed to the extent that the
assets carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation, if no impairment
loss had been recognized.
	Under U.S. GAAP, an impairment loss is recognized whenever the sum
of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset. An impaired
asset is written down to its estimated fair value based on quoted
market prices in active markets of discounting estimated future cash
flows. Reversals of previously recognized impairment losses are
prohibited.
	There were no impairment charges recognized by the Company and
therefore there were no differences between Indonesian GAAP and U.S.
GAAP.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

| r. |
| --- |
| Under Indonesian GAAP, the Company classifies gain (loss) on sale of
property, plant and equipment as a component of other income
(expense) which is excluded from determination of operating income. |
| Under U.S. GAAP, gain (loss) on sale of property, plant and
equipment is classified as a component of operating expenses and
hence included in the determination of operating income. For the
years ended December 31, 2001, 2002 and 2003, operating income would
have been higher by Rp10,944 million, Rp130,450 million and
Rp182,883 million, respectively, and other income (expenses) would
have been lower by the same amounts due to the inclusion of the gain
on sale of property, plant and equipment in the determination of
operating income. |

(2) A summary of the significant adjustments to consolidated net income for the six months period ended June 30, 2003 and 2004 and to consolidated stockholders equity as of June 30, 2003 and 2004 which would be required if U.S. GAAP had been applied, instead of Indonesian GAAP, in the consolidated financial statements are set forth below:

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)

| Net income according to the consolidated
statements of income prepared under
Indonesian GAAP | | | 3,538,081 | | 2,875,156 | |
| --- | --- | --- | --- | --- | --- | --- |
| U.S. GAAP
adjustments - increase
(decrease) due to: | | | | | | |
| Termination benefits | (a | ) | | | 84,598 | |
| Capitalization of foreign exchange
differences | (b | ) | 34,613 | | 17,891 | |
| Interest capitalized on property under
construction | (c | ) | 21,004 | | 17,479 | |
| Revenue-sharing arrangements | (d | ) | | | 189,454 | |
| Revaluation of property, plant and equipment | (e | ) | | | | |
| Pension | (f | ) | 3,028 | | 156,935 | |
| Equity in net income/ (loss) of associated
companies | (g | ) | (87 | ) | (371 | ) |
| Amortization of landrights | (h | ) | (1,904 | ) | (6,884 | ) |
| Depreciation of equipment to be installed | (i | ) | | | | |
| Revenue recognition | (j | ) | (32,244 | ) | 14,835 | |
| Goodwill | (k | ) | | | 10,635 | |
| Capital leases | (l | ) | 5,157 | | 12,442 | |
| Adjustment for Dayamitra accounted at 100% | (m | ) | | | (21,855 | ) |
| Reversal of difference due to change of
equity in associated companies | (n | ) | | | | |
| Asset retirement obligations | (o | ) | | | | |
| Deferred income tax: | | | | | | |
| Deferred income tax on equity method
investments | (p | ) | | | | |
| Deferred income tax effect on U.S. GAAP
adjustments | | | 28,110 | | (148,090 | ) |
| | | | 57,677 | | 327,069 | |
| Minority interest | | | (370 | ) | (9,116 | ) |
| Net adjustments | | | 57,307 | | 317,953 | |
| Net income in accordance with U.S. GAAP | | | 3,595,388 | | 3,193,109 | |
| Net income
per share - in full Rupiah amount | | | 356.69 | | 316.78 | |
| Net income per ADS (20 Series B shares
per ADS) - in full Rupiah amount | | | 7,133.71 | | 6,335.56 | |

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)

| Equity according to the consolidated balance sheets
prepared under Indonesian GAAP | | | 14,787,691 | | 20,196,014 | |
| --- | --- | --- | --- | --- | --- | --- |
| U.S. GAAP
adjustments - increase (decrease) due to: | | | | | | |
| Early retirement benefits | (a | ) | 203,853 | | 84,598 | |
| Capitalization of foreign exchange differences -
net of related depreciation | (b | ) | (784,011 | ) | (526,778 | ) |
| Interest capitalized on property under construction -
net of related depreciation | (c | ) | 102,475 | | 113,485 | |
| Revenue-sharing arrangements | (d | ) | (352,668 | ) | (206,059 | ) |
| Revaluation of property, plant and equipment: | (e | ) | | | | |
| Increment | | | (664,974 | ) | (664,974 | ) |
| Accumulated depreciation | | | 664,974 | | 664,974 | |
| Pension | (f | ) | 255,465 | | 279,091 | |
| Equity in net loss of associated companies | (g | ) | (17,804 | ) | (18,623 | ) |
| Amortization of landrights | (h | ) | (7,005 | ) | (72,095 | ) |
| Revenue recognition | (j | ) | (134,404 | ) | (753,714 | ) |
| Goodwill | (k | ) | | | 53,182 | |
| Capital leases | (l | ) | 10,141 | | 33,565 | |
| Adjustment for Dayamitra accounted at 100% | (m | ) | | | (60,574 | ) |
| Asset retirement obligations | (o | ) | | | (848 | ) |
| Deferred income tax: | | | | | | |
| Deferred income tax on equity method
investments | (p | ) | | | | |
| Deferred income tax effect on U.S. GAAP
adjustments | | | 56,893 | | 307,733 | |
| | | | (667,065 | ) | (767,037 | ) |
| Minority interest | | | 42,481 | | 56,805 | |
| Net adjustments | | | (624,584 | ) | (710,232 | ) |
| Equity in accordance with U.S. GAAP | | | 14,163,107 | | 19,485,782 | |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2003 AND 2004, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)

The changes in stockholders equity in accordance with U.S. GAAP for the six months period ended June 30, 2003 and 2004 are as follows:

Equity at beginning of year	13,910,864		16,284,692
Changes during the year:
Net income under U.S. GAAP	3,595,388		3,193,108
Dividends	(3,338,110	)
Unrealized gain on marketable securities			136
Other comprehensive income, net of nil tax	(5,035	)	7,846
Equity at end of year	14,163,107		19,485,782

With regard to the consolidated balance sheets, the following significant captions determined under U.S. GAAP would have been:


Consolidated balance sheets
Current assets	8,985,191	11,716,193
Non-current assets	32,014,975	43,698,743
Total assets	41,000,166	55,414,936
Current liabilities	9,074,682	11,377,484
Non-current liabilities	11,903,600	20,695,980
Total liabilities	20,978,282	32,073,464
Minority interest in net assets of subsidiaries	3,896,706	3,855,090
Equity	16,125,178	19,485,782
Total liabilities and equity	41,000,166	55,414,336

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(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC

| a. |
| --- |
| The reconciliation between the expected income tax provision in
accordance with U.S. GAAP and the actual provision for income tax
recorded in accordance with U.S. GAAP is as follows: |

| Consolidated income before tax in accordance
with U.S. GAAP | 6,333,061 | | 6,069,711 | |
| --- | --- | --- | --- | --- |
| Income tax in accordance with U.S. GAAP
at 30% statutory tax rate | 1,899,901 | | 1,820,896 | |
| Effect of permanent differences at the enacted
maximum tax rate (30%) | | | | |
| Net periodic post-retirement benefits cost | 31,277 | | 71,452 | |
| Amortization of discount on promissory notes
and interest expense | 48,678 | | 13,576 | |
| Amortization of intangible assets | | | | |
| Tax penalty | | | | |
| Employee benefits | 16,669 | | 15,073 | |
| Permanent differences of the KSO Units | 5,758 | | 3,100 | |
| Amortization of landrights | 1,394 | | | |
| Income which was already subject to final tax | (48,444 | ) | (22,353 | ) |
| Decline in value of investments | | | | |
| Gain on sale of Telkomsels shares | | | | |
| Equity in net (income) loss of associated
companies | (658,285 | ) | (545,812 | ) |
| Others | 26,819 | | 139,030 | |
| Total | (576,134 | ) | (325,934 | ) |
| Deferred tax effect on net income
of associates companies | 439,706 | | 336,350 | |
| Provision for income tax in accordance
with U.S. GAAP | 1,763,473 | | 1,831,312 | |

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Table of Contents

PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

| a. |
| --- |
| For the three year period ended December 31, 2003, all of the
Companys operating revenues occurred in Indonesia, and accordingly,
the Company has not been subject to income tax in other countries. |


Deferred tax assets
Allowance for doubtful accounts	352,407		172,274
Allowance for inventory obsolescence	14,476		12,533
Tax loss carryforwards			285,856
Provision for long service awards	359,364		154,503
Deferral of revenue	188,917		203,617
Long-term investments
Others	(159,002	)	137,016
Provision for employee benefits	(99,662	)	73,085
Total	656,500		1,038,884
Deferred tax liabilities
Difference
between book and tax - non-current assets	(3,770,021	)	(3,977,128	)
Long-term investments	50,732		(14,138	)
Pension	(3,212	)	(35,395	)
Prepaid expenses and other receivables	(31,610	)	(35,396	)
Total	(3,754,111	)	(4,062,057	)
Total
deferred tax liabilities - net	(3,097,611	)	(3,023,173	)

| | Benefits enjoyed by pensioners fall under the category of benefits
in kind which are non-deductible expenses under Indonesian tax laws. |
| --- | --- |
| b. | Fair Value of Financial Instruments |
| | The following methods and assumptions are used to estimate the fair
value of each class of financial instruments: |
| | Cash and cash equivalents and temporary investments |
| | The carrying amount approximates fair value because of the
short-term nature of the instruments. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

b.
Short-term bank loans
The carrying amount approximates fair value because of the
short-term nature of the instruments.
Long-term liabilities

| (i) | The fair value of two-step loans are estimated on
the basis of the discounted value of future cash flows expected
to be paid, considering rates of interest at which the Company
could borrow as of the respective balance sheet dates. |
| --- | --- |
| | For purposes of estimating the fair value of two-step loans, the
Company has used the average Rupiah borrowing rates of 9.69%,
the average U.S. Dollar borrowing rate of 1.42% and the
respective average borrowing rates for 2004 for the debt in
other currencies. Under the current environment, an estimate of
the interest rates as of a point in time, given the significance
of the Companys debt and the general unavailability of funds,
is difficult. For one percentage point increase in the
above-mentioned borrowing rates, the fair value of the Companys
long-term two-step loans at June 30, 2004 would decrease by
Rp450,581 million. |
| (ii) | The fair value of suppliers credit loans, bridging
loan and long-term bank loan is estimated on the basis of the
discounted value of future cash flows expected to be paid,
considering rates of interest at which the Company could borrow
as of the balance sheet date. |
| (iii) | The fair value of the liability for the
acquisition of subsidiaries is estimated on the basis of the
discounted future cash flows expected to be paid. |
| (iv) | The fair value of the bonds and guaranteed notes
are based on market prices at balance sheet date. |

The estimated fair values of the Company and its subsidiaries financial instruments as June 30, 2004 are :

amount	value
Cash and cash equivalents	6,983,664	6,983,664
Temporary investments	52,866	52,866
Short-term bank loans	2,871,752	3,367,794
Long-term liabilities	11,790,992	13,827,670

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional Financial Statement disclosures required by U.S. GAAP and U.S. SEC (continued)

| b. |
| --- |
| The methods and assumptions followed to determine the fair value
estimates are inherently judgmental and involve various limitations,
including the following: |

i. Fair values presented do not take into consideration the effect of future currency fluctuations.

b. Fair Value of Financial Instruments (continued)

ii. Estimated fair values are not necessarily indicative of the amounts that the Company and its subsidiary would record upon disposal/termination of the financial instruments.

c.	Research and Development
	Research and development expenditures, as determined under U.S.
GAAP, amounted to approximately Rp4.034 million
and Rp6.172 million 2003 and 2004, respectively.
d.	Comprehensive Income

Net income under U.S. GAAP	3,595,388		3,193,108
Unrealized gain (loss) in value of securities			136
Others	(5,035	)	7,846
Equity at end of year	3,590,353		3,201,090

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